The coming year looks set to bring further consolidation to Sri Lanka’s financial sector, with market forces expected to drive the trend,the Oxford Business Group said.
Last year saw the the Central Bank of Sri Lanka (CBSL), take steps to bolster the sector’s operating environment by promoting consolidation amongst the country’s banks and non-banking financial institutions (NBFIs).
The CBSL had targeted a sector of around 20 NBFIs upon completion, roughly one-third of the 58 operating when the master plan was published. The roadmap also outlined higher minimum capital requirements for commercial and specialised banks, with a focus on the adoption of risk management best practices.
Progress thus far has been fair, with seven NBFIs completing some form of consolidation as of the end of last year; however, most of the benchmarks set out in the plan have yet to be achieved,the OBG said. A planned merger between DFCC Bank and National Development Bank (NDB), agreed to in early 2014, was called off in May, and most other consolidation has been limited to small NBFIs or subsidiaries of larger banking groups.
State pressure for lenders to consolidate was largely replaced by market momentum – an approach favoured by many analysts – with the victory of the United National Party in the parliamentary elections expected to reinforce this more hands-off approach. Officials from the CBSL told local media in May that the consolidation process would be part of the new administration’s long-term economic policy, to be carried out in a more systematic manner.
Many industry players agree that while consolidation is needed, the sector will be better served if market forces dictate the process. In particular, market-driven consolidation could help avoid accumulation of weak assets amongst non-banking institutions forced to merge. However, others in the industry see a place for guided consolidation, especially if the interests of stakeholders are not being protected by the market.
Signs that market forces are already at work are in evidence, with DFCC Bank and DFCC Vardhana Bank announcing plans in May to combine their operations. The news came just one week after the lenders called off the planned merger with NDB.Financial sector consolidation is expected to further improve the credit profile of Sri Lanka’s financial institutions, Fitch noted, strengthening franchises and reducing supervisory burdens.
Consolidation would be beneficial to the sector in the long term, while being credit neutral in the short to medium term, the report found.
Oxford Business Group (OBG) is a global publishing, research and consultancy firm, which publishes economic intelligence on the markets of the Asia, Middle East, Africa and Latin America and the Caribbean.
www.dailynews.lk
Last year saw the the Central Bank of Sri Lanka (CBSL), take steps to bolster the sector’s operating environment by promoting consolidation amongst the country’s banks and non-banking financial institutions (NBFIs).
The CBSL had targeted a sector of around 20 NBFIs upon completion, roughly one-third of the 58 operating when the master plan was published. The roadmap also outlined higher minimum capital requirements for commercial and specialised banks, with a focus on the adoption of risk management best practices.
Progress thus far has been fair, with seven NBFIs completing some form of consolidation as of the end of last year; however, most of the benchmarks set out in the plan have yet to be achieved,the OBG said. A planned merger between DFCC Bank and National Development Bank (NDB), agreed to in early 2014, was called off in May, and most other consolidation has been limited to small NBFIs or subsidiaries of larger banking groups.
State pressure for lenders to consolidate was largely replaced by market momentum – an approach favoured by many analysts – with the victory of the United National Party in the parliamentary elections expected to reinforce this more hands-off approach. Officials from the CBSL told local media in May that the consolidation process would be part of the new administration’s long-term economic policy, to be carried out in a more systematic manner.
Many industry players agree that while consolidation is needed, the sector will be better served if market forces dictate the process. In particular, market-driven consolidation could help avoid accumulation of weak assets amongst non-banking institutions forced to merge. However, others in the industry see a place for guided consolidation, especially if the interests of stakeholders are not being protected by the market.
Signs that market forces are already at work are in evidence, with DFCC Bank and DFCC Vardhana Bank announcing plans in May to combine their operations. The news came just one week after the lenders called off the planned merger with NDB.Financial sector consolidation is expected to further improve the credit profile of Sri Lanka’s financial institutions, Fitch noted, strengthening franchises and reducing supervisory burdens.
Consolidation would be beneficial to the sector in the long term, while being credit neutral in the short to medium term, the report found.
Oxford Business Group (OBG) is a global publishing, research and consultancy firm, which publishes economic intelligence on the markets of the Asia, Middle East, Africa and Latin America and the Caribbean.
www.dailynews.lk
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