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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » NSB-TFC share deal cannot be justified whatsoever, says former NSB chairman

NSB-TFC share deal cannot be justified whatsoever, says former NSB chairman

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sriranga

sriranga
Co-Admin
By Bandula Sirimanna
The National Savings Bank’s (NSB)’s decision to buy a 13% stake in The Finance Co. Plc (TFC) at Rs. 50 each, above Rs. 20 from the prevailing market price cannot be justified whatsoever as the company had made this investment in an imprudent manner inflating the share price of a loss -making finance company, said a former chairman of the bank and member of parliament D.M. Swaminathan in an Interview with the Business Times last week.

He noted that when he was at the helm of the NSB in 2002 -2004, the state bank invested in high net-worth stocks like John Keels, National Development Bank, and Commercial Bank gaining dividends,
NSB Chairman Pradeepa Kariyawasam on Monday tendered his resignation after defying trade unions calls for his removal. The move also came a day after a powerful Business Times email poll showed that more than 90 % of the respondents wanted him to quit for his role in the flawed transaction. All other directors have resigned.

Mr Swaminathan noted that the NSB deal had contravened the National Savings Bank Act. He added that as per Section 39 of the NSB Act No. 30 of 1971, the savings giant before investing in a particular stock (other than those in which the Government has a controlling 50% stake) must obtain approval from the Minister (of Finance) in consultation with the Monetary Board. This section deals with authorised business of the bank. However he pointed out that it was impractical for an institution like NSB to seek approval for each stock market investment.

During his time, the bank informs the Finance Ministry about the stock market transaction and obtains the approval afterwards. This was the practice followed by the bank when he was holding the chairmanship, he said. Justifying his prudent investments in the stock market during his tenure, Mr. Swaminathan said that NSB played a key role in share market trading and the bank’s equity portfolio performed well in terms of capital gains and dividends during the year 2003 by prudently selecting under-valued stocks with potential for strong capital gains. Capital gains of Rs. 475 million were realized and dividend income earned amounted to Rs.72 million. This was highlighted in the bank’s annual report, he said.

However he pointed out that no one can justify the recent NSB deal as it has put the depositors’ money at high risk and it has eroded the public confidence in the country’s premier savings bank.

Letter

TFC deal
The specific clarification of the Board of Directors of the NSB regarding the purchase of voting shares of the TFC seems to conceal more than what it attempts to reveal. In paragraph 1 of the press notice (which appeared in Sunday newspapers on May 13) the Board states that “having done a further analysis, a favourable consideration was given to purchase voting shares of TFC amounting to 10%-15%”

In para 2 of this self-same notice they say, in the same breath, that “Since the Board was of the view that the benefits of this investment is (sic) not as strong enough to proceed with, a decision was taken not to make payment on this transaction.” Leaving aside the legal implications of this decision, how ethical is the step taken?

In this age of financial scams, the people will continue to do business with the NSB in spite of its comparatively low interest rates because they are sure of getting their money back due to the guarantee provided by Government. But will the Government allow the self-same Board of Directors to run this important financial institution after this fiasco? It is not just a question of money but more importantly a question of trust and accountability.

G. Liyanagama
Matara
http://www.sundaytimes.lk/120527/BusinessTimes/bt14.html

http://sharemarket-srilanka.blogspot.co.uk/

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