Sri Lanka’s DFCC Bank is mulling on the possibility of a merger with its 99.07% owned commercial banking subsidiary, DFCC Vardhana Bank Plc following the amendment to the Banking Act, which is presently in the pipeline. According to the management, the facilitation of consolidation through changes to the Banking Act would, therefore, be a factor that would have a bearing on how the firm would proceed.
“It is something that we have been always looking for. Yet, there are, of course, pros and cons involved. There are some administrative and operational difficulties. If you look at some other countries in Asia, their laws and regulations facilitate Mergers and Acquisitions (M&As) among banks whereas ours are somewhat restrictive but it allows under some specific circumstances. But the process involved is quite tedious. Now there is a general feeling among the regulators that the M&As may be allowed. But CBSL does not want to see hostile takeovers either. But if the parties to the M&A genuinely want to integrate, we would like to see some level of facilitation process in the law so that you can carry them out more simply rather than going through certain provisions of the banking and the companies act which could be quite tedious,” DFCC Group Chief Executive, Nihal Fonseka told The Nation Gain in a recent interview.Meanwhile, addressing shareholders in the recently released Annual Report, DFCC Group Chairman J M S Brito also said that despite the fact that DFCC Group’s business model, which comprises two core activities carried out by two separate legal entities but functioning in an operational merger, unique in the local industry and the corporate model performing well, given that it is in the growth phase, the evolving regulatory landscape, competitive pressures and market forces may dictate a concentration of resources on the commercial banking operations of the DFCC Banking Business at some point in the future.
“Other development finance institutions in the region, with a presence in commercial banking, have also faced similar circumstances and considerations. While some have gone down the development bank - commercial bank merger route, others have opted to retain the status quo. What is important from DFCC’s perspective is that our model also provides the option for a restructure at some time in the future should a merger be considered the best option to compete in the market,” the DFCC Chairman said.
Sri Lanka’s banking system comprises 23 licensed commercial banks (LCB) and 9 licensed specialised banks (LSB). Out of the 23 LCBs, state-owned banks, Bank of Ceylon (BOC) and People’s Bank account for about 35% of total banking assets.
Apart from these state-owned players, there are 10 private sector and 11 foreign banks. In the private space, 3 large banks (COMB, HNB and Sampath Bank) constitute around 25% of the country’s total banking assets. Among LSBs, National Savings Bank (NSB) is the largest in Sri Lanka and accounts for around 70% of the total assets of LSBs and 12% of total banking assets.