Corporate Governance remains top on the agenda in the non-bank financial sector consolidation which is now in motion for firms in this sector, according to a top Central Bank (CB) official. “Ensuring fitness and propriety of board members and senior management and ensuring clear demarcation on involvement of the board and senior management in affairs [...]

The Sunday Times Sri Lanka

Corporate Governance still a top priority in post NBFI consolidation

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Corporate Governance remains top on the agenda in the non-bank financial sector consolidation which is now in motion for firms in this sector, according to a top Central Bank (CB) official.

“Ensuring fitness and propriety of board members and senior management and ensuring clear demarcation on involvement of the board and senior management in affairs of the financial institution are important,” J P R Karunaratne, Director/Department of Supervision of Non-Bank Financial Institutions (NBFI) said, presenting a ‘Regulatory outlook of the sector in the post consolidation period’ at the Directors Symposium for licensed finance and specialised leasing companies held in Colombo recently. He said that dedicated board sub committees, ensuring arms-length dealings with related parties and transparency through disclosures are top priority.

Integrated Risk Management should be the core of the institutions, he said, adding that adopting an integrated risk management process to monitor and manage all risk elements is high on the agenda. “The responsibility of understating the risks and managing such risks appropriately are vested with the Board of Directors.”

Business models of these institutes should be diversified, according to him.

“Enlarge the business scope to facilitate multiple income sources, such as introducing diversified products and creating business models in the line of one-stop-financial-services should be done.”

Focusing on business models based on the micro, small and medium enterprises, focusing on sectors such as construction, tourism, manufacturing, services and agriculture which are key economic drivers, is also important, he added.

Constant reminder

Good corporate governance practices constantly remind the directors and the management of a company that both these groups are expected to look after the interests of the shareholders and not of themselves, Dr. Nalaka Godahewa, Chairman Securities and Exchange Commission (SEC) said making a presentation on Corporate Governance.

“The corporate governance framework should ensure that timely and accurate disclosure is made on all material matters regarding the corporation, including the financial situation, performance, ownership, and governance of the company.” The corporate governance framework should ensure the strategic guidance of the company, the effective monitoring of management by the board, and the board’s accountability to the company and shareholders, he added.

“It is the duty of every company director to act in good faith and in the interests of the company. Irrespective of who nominated the respective director to the board. Once you assumed duties as a director you no longer represent the interests of those who nominated you, but the interests of the company.”

At a market survey conducted recently by SEC, both the local and foreign investors rated ‘company reputation’ and ‘trust in management’ as more important factors in making an investment decision than just looking at the history of returns, he added. “A global survey conducted by the McKenzie group a few years ago found that institutional investors would be willing to pay a premium of 22 per cent for investments in well-governed companies, as opposed to other companies with comparable market potential but poor in corporate governance.”

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