Financial Times

Freeing People's Bank from the hands of politicians
People's Bank has improved its financial performance while gaining better control over its finances under the reforms initiated by new management but needs to be reconstituted to remove it completely from the hands of politicians, its director of restructuring and strategic development Derek Kelly said.

"Now we have better checks and balances but there's still the risk that we could slip back (to the previous situation)," he told the performance review organised by the National Review Committee under the Finance Ministry at a meeting recently.
"So in some way People's Bank must be reconstituted - taken out of the hands of politicians. That process is on now."

People's Bank was set up under an act of parliament to cater to the requirements of the rural sector and develop the co-operative movement in the island. Over the years, largely resulting from advances given to the cronies of politicians, the bank had piled up a huge bad loan portfolio of Rs. 23 billion of which Rs. 15 billion has been provided for. The bank has a capital deficit of Rs. 11.7 billion.

Members of the review committee, headed by Riyaz Mihular of the Institute of Chartered Accountants, demanded to know the identities of politicians and bank officials responsible for its huge bad loan portfolio, saying the public had a right to know.

However, People's Bank chairman Lal Nanayakkara said it was difficult to identify the culprits because: "Politicians never give directions in writing." While General Manager Sarath de Silva added that it was difficult to identify bank officials responsible for decisions that resulted in bad loans.

The bank intends to raise fresh capital to strengthen its capital position and now operates on a government letter of comfort under which the government guarantees to make funds available to meet the bank's minimum capital adequacy requirements.

Committee members pointed out several weaknesses in the bank's financial statements such as the need to disclose pension fund liabilities. They also queried about remarks made by the Auditor General's Department over Rs. 55 million spent on an advertising campaign without calling for tenders in 2000. Nanayakkara said the bank had made considerable savings from cutting nearly 1,000 staff last year. The average staff costs amounted to Rs. 40,000 per person each month.

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