The People’s Bank (PB) CEO/General Manager N. Vasantha Kumar has drawn reference to the Sunday Times lead story of September 1, 2013 under the headline “State Bank faces semi-privatisation”.
He said, “I would like to place before you the facts and figures in their correct perspective, with a categorical assurance that there are no moves whatsoever to “semi-privatise the People’s Bank or opt for a share issue, either through public or private entities to divest nearly half of the Bank’s capital”.
While enumerating below the factual position, I would also like to take take this opportunity to draw your attention to the pledge given to the masses by His Excellency Mahinda Rajapaksa, the President of Sri Lanka, at the inauguration of the Oluvil Harbour on Sunday, September 01, 2013 that the “State Banks will not be privatised and this is an era in which the sold assets of the government are being repurchased”.
The public statement by His Excellency the President further reinforces the clear stance we have consistently adopted on this issue and therefore, any assertions that the People’s Bank is heading towards privatisation are not only absolutely false and baseless.
As the second biggest state-owned commercial bank established in Sri Lanka in 1961, I wish to clear any doubts, misgivings or reservations in the minds of our customers and the public at large in this regard and set the record straight with the firm assurance that the People’s Bank will remain a wholly government-owned commercial bank sans any changes to the Bank’s foundation and legal structure.
At the time the People’s Bank was incorporated under an Act of Parliament in 1961, the authorized share capital was adequate to meet the banking requirements of that period. Since 2004, the government had made gradual capital infusions to a total of Rs. 7.1 billion, but the money was lying in the Pending Capital Allotment as shares could not be issued as the initial authorised share capital was inadequate.
The inadequate authorised share capital was in keeping with the minimum amount of capital adequacy in terms of Central Bank regulations at the time, but with the expansion and rapid growth of the People’s Bank over decades and the government’s additional capital infusion of Rs. 7.1 billion, the legal framework had to be changed to accommodate the enhanced authorised share capital.
The ongoing moves to amend the People’s Bank Act No. 29 of 1961 is for the specific purpose of catering to the expansion and growth of the Bank and, as explained, to maximise on the use of the fresh capital infusions by the government for the greater development and progress of the People’s Bank and its customer base. The Non Performing Loans (NPL) ratio of the People’s Bank was 2.8% in December 2012, of which the Bank made over 80% provisions. Hence, the net NPL was only 0.4%, which was well below banking industry averages. If a provision was not made for NPLs, the Bank would need to take a hit on the net value with a write-off.
It should be noted that the non-performing loans referred to were mostly those granted prior to the year 2000. As explained, they were adequately provided for thereby reducing the net NPL to just 0.4%.
In must be noted that the Bank resorted making provisions on its old NPLs due to inherent and legal limitations without throwing it out of the book, as in the case of certain private sector financial institutions. In terms of the statutory liquid asset ratio, the People’s Bank maintains a healthy 25% plus, which is over and above the Central Bank mandatory requirements on 20%.
The People’s Bank also maintains a firm 14% Capital Adequacy Ratio, which is again way above the Central Bank mandatory requirement of 10%. Currently, there is no requirement for any fresh capital for ‘semi-privatisation, a share issue or diversification’.
With the Bank’s profits, asset quality and capital adequacy ratio the best ever seen, coupled with AA+ Fitch Rating- the highest rating People’s Bank has secured so far- there is obviously no need or reason for the Bank to opt for “semi-privatisation, a share issue or diversification”.
As these facts and figures amply prove, there is no perfection on the Bank being in trouble in any way. In fact, the People’s Bank has never been healthier in its 52 year-old history in terms of profit, quality of assets and capital adequacy ratio than as at end 2012.
Therefore, the Sunday Times news report is totally misleading’.
ST said semi privatisation while COPE says Rs. 31 b. of loans unpaid yet
Our Reporter Bandula Sirimanne says:
The Sunday Times stands by its story published last week which referred to moves for the ‘semi privatisation’ of the People’s Bank as opposed to widely mis-understood references to us having referred to the ‘privatisation’ of the Bank.
The report spoke of the Government, as one of the options, considering retaining 51 per cent control and divesting 49 per cent of the shares while retaining management control through an amendment to the Bank’s Act.
While the People’s Bank claims it is doing well, the Parliamentary Committee on Public Enterprises (COPE) has a different view. According to the recent COPE report a total of Rs. 31.38 billion had been taken as loans from the People’s Bank by 52 businessmen and not paid back so far.
In the meantime the Finance Ministry top brass headed by the Treasury Secretary held a meeting this week to discuss matters pertaining to the two state banks – People’s Bank and the Bank of Ceylon in the aftermath of the Sunday Times exposure – on the amendment to the People’s Bank Act, No. 29 of 1961.
Owing to the ‘chaos’ and denials of the story, the Sunday Times learns that a decision was taken to ‘amend’ the amendment which deals with provisions to dispose of the entire undertaking of the bank including its shares – to avoid any reference to share disposal.
This amendment which was earlier approved by the Cabinet reads as follows:
“Replacement of sections 4 and 5 of Act No. 29 of 1961”
2. Sections 4 and 5 of the People’s Bank Act, No. 29 of 1961 (hereinafter referred to as the (“principal enactment”) are hereby repealed and the following section substituted therefor:
(z) to sell, dispose of the entire undertaking of the Bank or any part thereof, for such consideration as the Bank may think fit, and in particular for shares, debentures or securities of the bank or to amalgamate the Bank’s business with that of any other Bank”
In other developments this week based on the Sunday Times report, People’s Bank unions have sought a second meeting with the Finance Ministry to once again clarify the status of the bank pertaining to the amendment
The practice in the past to inject capital into the bank has been through the issue of what is called “restructuring bonds” but a senior Government official who spoke to the Sunday Times on condition of anonymity said that the Treasury was in no position to inject any fresh capital to the bank.
Previous occasions when restructuring bonds were issued by the Treasury to bail out the bank was in 1993 by way of 30 year bonds amounting to Rs. 10.5 billion. These bonds will mature in 2023.In 1996, due to mounting bad loans, once again bonds to the value of Rs. 10.056 billion were offered maturing however in 2006.
In 1999, the Government once again intervened and issued a letter of comfort to the People’s Bank to recover from capital shortfalls.