Says those unfit, improper and with conflict of interest appointed by previous regime will be removed; wants shareholders and management to cooperate
- Assures new appointees will improve good governance
- leading to normalcy in future appointments to Boards similar to other PLCs
- Critics allege it is victimisation or furthering the new regime’s own agenda
- Prime Minister holds meeting with senior staff of Central Bank; assures independence
- Major reforms in financial
- sector in the offing with changes to Monetary Act and Banking Act
The Government yesterday justified the decision to flex its shareholding muscle in commercial banks to clean up Boards of Directors tainted by improper appointments of the previous regime.
“We are cleaning up the stinking mess,” Policy Planning and Economic Affairs Deputy Minister Dr. Harsha de Silva told the Daily FT yesterday. He alleged that the previous regime appointed individuals that were unfit, improper and had conflicting interests to the Boards of commercial banks.
“Among them was a person charged with a criminal offence and another who ran down a finance company. Cronies looking after the previous regime’s interests, friends and relatives too were appointed. Several retired ex-Central Bankers loyal to the previous regime were also among them,” said de Silva, who while in the Opposition also cried foul over the same appointments.
“In the short-term we are keen to appoint proper people so as to improve corporate governance and we will use our shareholding clout to do so. I hope the other shareholders and management will cooperate,” the Deputy Minister said.
“In the medium term we are keen to revert to the former status quo where normal procedures were adapted when appointing directors to the Boards as in the case of other public-listed companies,” he added.
To clean up Boards and improve governance, the new Government will use its shareholding clout by virtue of stakes held by various State entities within commercial banks. The previous regime too used the same tool for what it felt was the need to appoint competent people to improve these financial institutions.
The Sirisena-Wickremesinghe Interim Government doing the same has received a lot of flak despite the Deputy Minister’s justification.
De Silva said the clean-up was among the pledges made by the Common Opposition in the run-up to the 8 January presidential election. He said that the move was an interim arrangement until the country’s biggest superannuation fund, the EPF, was taken out of the Central Bank’s purview.
“At a later stage, EPF can make its investments in sound equities. We will not prevent it but we will not let a repeat of the situation where financial institutions are taken control according to the whims and fancies of political masters,” the Deputy Minister added.
He claimed that previous appointees played politics while serving on these Boards and forced banks to carry out directed lending, most of which was risky and could not be recovered.
Yesterday Prime Minister Ranil Wickremesinghe and Dr. de Silva met with senior officials of the Central Bank to explain the Government’s policies and initiatives. According to the Deputy Minister, the Central Bankers were appreciative of the new Government’s commitment to ensuring independence.
“Post-general election, the new Government will undertake major reforms in the financial services sector. We will amend the Monetary Act and the Banking Act to ensure the independence of the Central Bank as well as better governance and risk management in banking and non-banking institutions,” Dr. de Silva said.
Government clout in commercial banks comes through key stakes held by the EPF, ETF, Sri Lanka Insurance Corporation, Bank of Ceylon and National Savings Bank.
Board nominee speculation
Though the Government nominees to the Boards of commercial banks are yet to be made public, there has been widespread speculation. Some names are questionable whilst others have been welcomed.
For the biggest private sector player, Commercial Bank, a criminal lawyer Rajeev Nanayakkara has been proposed replacing former Deputy Governor D. Dheerasinghe who will step down as the bank’s AGM today.
For DFCC Bank, senior banker Ananda Athukorala has been recommended in place of shareholder nominee Royle Jansz but there has been a difference of opinion with some suggesting Athukorala might be made Deputy Chairman.
Financial sector analysts said if a Chairman is a shareholder director then the Government should not intervene but could appoint their nominees to the Board. The same argument is applied with regard to moves to oust Dhammika Perera as Chairman of Sampath Bank despite his major shareholding. Veteran banker Amitha Gooneratne has been proposed for Sampath Bank. Senior banker Ravi Dias has been proposed for Seylan Bank and Rienzie Arsecularatne PC as Chairman of HNB.
State-owned entities control 19% stake in Commercial Bank and 35% in DFCC Bank, which in turn owns 15% in the former. Government entities’ control in NDB is 34% and 27% in HNB, 16% in Seylan and 12.5% in Sampath Bank.
Giving the benefit of the doubt over likely appointments to the Board, industry analysts have been somewhat dismayed by the legacy of recent changes made in other financial institutions. A case in point is the appointment of Finance Minister Ravi Karunanayake’s brother-in-law as Managing Director of the Sri Lanka Insurance Corporation and another relative to the Board of the Merchant Bank of Sri Lanka. The suitability of several others appointed to the Boards of these institutions has been questioned as well though some are professionals in their own right whilst others may be politically aligned, the same allegation which the Interim Government is citing for the removal of previous appointees.
Occupying a Board seat in a Bank is influential but carries heavy responsibility as well as highly attractive financially prompting one senior banker to claim that more people are after the money than anything else and that the best way to take care of people supportive of the new regime is to offer a Directorship in a Bank.
However independent analysts emphasised that until the promised reforms were effected, a properly constituted broader nominations committee should consider and make necessary changes, if any, in financial services institutions. This will eliminate or reduce the appointment of persons overly preferred by a Minister or political party and infuse a greater degree of professionalism and accountability to shareholders and the public at large.
Courtesy - Daily FT