Financial Times

Central Bank evading responsibility on Golden Key issue

By Natasha Gunaratne

The Golden Key Credit Card Company scandal has created a severe mistrust in the financial sector in Sri Lanka, says the Chairman of Hatton National Bank PLC Rienzie Wijetilleke. He added that the Central Bank (CB), being the regulatory authority, has evded its responsibilities through various excuses.

Mr. Wijetilleke said it is funny for the authorities to say they are not responsible and further said ‘it was funny and sad’ that they are trying to give excuses. He feels the CB cannot deny responsibility for allowing such an unnecessary lapse to take place.

Speaking at a seminar on conflict of interest and related party transactions organized by the Institute of Chartered Corporate Secretaries of Sri Lanka on Thursday, Mr. Wijetilleke said Sri Lanka has its local Satyam's and local Madoff's as well, referring to the recent accounting scandal at Indian IT company Satyam and Bernard Madoff, the former Chairman of the NASDAQ who was charged with perpetrating a US$50 billion investor fraud through his investment securities company.

Mr. Wijetilleke described the rescue of Seylan Bank by the regulatory authorities as political, short-term decisions for long-term problems. Even though the CB managed to stop a run on Seylan Bank by having its management taken over by the Bank of Ceylon, a state bank, he pointed out that if the situation had kept deteriorating, it would have been the people's money that would have had to bail it out. Mr. Wijetilleke said there should have been an audit and due diligence first.

Mr. Wijetilleke said there are a lot of difficulties for banks in the current operating environment because of different interpretations. He cited the Banking Act and the Companies Act as having two different criteria for how long directors can serve on boards as an example. He also said there are several constraints that banks are working under, using the CB's new rules on NRFC's accounts as being impractical and a sign that the CB does not understand the situation.

Mr. Wijetilleke also said he tried to promote the consolidation of banks many years ago because he feels if banks were larger, they could help economies. Despite being dismissed back then, the viewpoint now is that consolidation is necessary but is untenable due to the 10% ownership limit. He said today's regulations give banks no leeway and prevent them from creating more economic activity for the country. Further, he added that regulations must be unambiguous, clear cut and applicable to all banks including state banks. He said Bank of Ceylon and People's Bank have had problems for years because of loans they gave to their cronies, signaling that the government does not have respect for conflict of interest in an area in which they control 60% of the market.

Former Chairman of the Ceylon Chamber of Commerce Chandra Jayaratne said there had to be a new paradigm in which conflicts of interest cannot only be governed by law and good governance codes but needs to take societal norms and values and focus on one's conscience. This includes going back to an ethics and conscience based management. However, Mr. Jayaratne said Sri Lanka does not have a society that demands its leaders to have ethics and morals. The public should be naming and shaming (them), he said.

Mr. Jayaratne added that there is conflict whenever people in key positions are not fit and proper and it is the role of corporate secretaries to provide guidance on this issue. Corporate secretaries and others need to remind the board of directors that they have a conscience. He also said there is a need for collective action amongst regulators.


 
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