[singlepic id=70 w=150 h=200 float=left]In the current context of the global economic and financial crisis, and signs of financial instability with a few significant corporate collapses in Sri Lanka, TISL has requested HE President Mahinda Rajapakse to appoint a Banking and Finance Commission to recommend Immediate short term measures needed for macro economic and financial stability (in terms of liquidity, solvency, capital adequacy and professionalism) as well as to ensure public confidence in the financial market and availability of credit at optimum cost.
TISL has suggested that the Commission be comprised of three to five capable, committed and conscientious professionals, representing a number of different interest groups.
A set of Terms of Reference – Immediate Short- Term and Short to Medium-Term – have also been suggested.
The letter reads:
Post War Economic Growth and Prosperity – A Strategy
Transparency International Sri Lanka (TISL) commends the Government of Sri Lanka, under your leadership, for undertaking the daunting task of delivering sustainable and equitable economic growth and prosperity to the Sri Lankan people, post war, terrorism and ethnic conflict. At this time, it is essential that the banking and finance sector of Sri Lanka stands capable, stable and solvent. Resources should be endowed to support the action strategies to be implemented by the government in partnership with the formal and informal private sector including small, medium and micro enterprises.
In the current context of the global economic and financial crisis, and signs of financial instability with a few significant corporate collapses in Sri Lanka, your Government has already taken some steps towards arresting possible instability in the local financial markets. While these strategies would stimulate sustainable economic activity, there is a need to have in place additional risk mitigation measures to achieve the goals set by the government.
TISL, along with some leading members of the private sector, professionals, academia, media and civil society have initiated a collective process, to support the initiatives of the government by examining the potential risks and gaps in the banking and finance sector.
As part of this process, TISL organized an initial round table review last week. The following issues were raised by the multi-stakeholder group in attendance:
- Potential significant macro risks impacting on banking and finance sector in the current context
- Probable vulnerability of several key market participants of the banking and finance sector
- Need to develop and implement sector/business segment priorities, ensuring equity and effective allocation of scarce resources
- Need to ensure the transparency and accountability in the administration of the stimulus package of the government
- Urgent need to have an oversight over the process of rescheduling financial facilities and assuring speedy recovery of the impacted enterprises
- Urgent need for collective regulatory oversight over key banking and financial sector enterprises whether presently regulated or not, and ensure that potential significant corporate collapses are minimized.
In this backdrop, we recommend that a Banking and Finance Commission be appointed without delay by Your Excellency. It is proposed that this Commission comprise of three to five capable, committed and conscientious professionals, representing a number of different interest groups and be requested to submit an interim report by end June 2009, and a Final Report by December 2009.
We propose the following outline for the Commission’s Terms of Reference:
Immediate Short Term
- Immediate short term measures needed for macro economic and financial stability (in terms of liquidity, solvency, capital adequacy and professionalism)
- Immediate short term measures to ensure public confidence in the financial market and availability of credit at optimum cost
- Efficient and equitable means of implementing any government sponsored stimulus packages introduced to achieve set objectives at an optimum cost
- Review of the recovery process implemented to give efficient and effective protection to borrowers by rescheduling financial facilities with equity and in line with national economic and social priorities.
- To recommend further measures necessary for speedy recovery, if rescheduling processes implemented are ineffective in meeting set goals
- Identify, using professional external expertise, key financial sector business entities “at risk” of insolvency and to devise appropriate recovery action plans (eg. Recapitalisation, Restructure and Turnaround Strategy, Management Restructure) and recommend action against failing key financial entities (eg. wind up and if appropriate take legal action against any wrong doing by the owners and director’s )
Short to Medium Term
- Strategies to ensure sustainable, affordable and easy access to credit for prioritized sectors and enterprise segments, including small and medium businesses and pro poor growth oriented micro credit
- The urgent need for market regulators to be independent, act collectively with intellectual integrity and have the required knowledge, skills and attitudes
- Ensure the governance and regulatory frameworks are strengthened to reduce the chances of re-occurrence of similar risks in the future.
- Reform of legislative and regulatory frameworks to enable effective regulation of all participants in the financial market, enforcing transparency, good governance and appropriate risk management (e.g. amendments to disclosure standards, accounting and auditing standards and recommendations to enhance the public interest related of accounting and auditing standards monitoring)
- The need for all financial sector Regulators to work collaboratively and in close coordination with key professional market participants (Auditors, Financial Analysts, Rating Agencies, Stock Exchanges)
- Enforcement of the requirement that only ‘fit and proper persons’ are permitted on the Boards and Management of financial institutions
- The cost effectiveness and feasibility of a compulsory deposit insurance scheme
TISL and its collective network partners will extend their cooperation and are willing to make further submissions to Your Excellency and to the proposed Commission.
FOR TRANSPARENCY INTERNATIONAL SRI LANKA
J. C. Weliamuna