CSE News Updates

More than a year after the share deal fiasco at the National Savings Bank (NSB), another ‘crisis’ surfaced at the bank.

This time it is over a US$1 billion bond issue the bank wants to float; not for its own use, but for the state.

The simple fact is that state coffers are empty and sources of funding for the Government are fast drying up. NSB Chairman Sunil Sirisena was sacked at the behest of always-in-the-news Treasury Secretary Dr. P.B. Jayasundera because the former stood his ground to carefully assess the risk element in this huge borrowing commitment. There were other issues too between Jayasundera and Sirisena, a recently retired and respected civil servant, over changes at the bank but the delay in securing the loan was the trigger to Sirisena’s departure from the bank.

While Pradeepa Kariyawasam’s exit from the NSB as chairman, after the 390 million-rupee stock market scam involving a deal between some directors and investors of The Finance Co and the NSB, was for an irregular transaction that would have severely affected the bank, Sirisena’s folly is in doing what is right and protecting the rights of shareholders (Government) and depositors in ascertaining the risks involved in securing a foreign loan.

Our report on the events at the NSB also speaks of Sirisena being reprimanded by Jayasundera for the delay in processing this loan. This is however not the first time Government officials have been lambasted for doing their job.

For the record, Kariyawasam, once a ruling party favourite, is yet to face charges of corruption with the state’s anti-bribery office pushing in all kinds of directions – earlier in favour of the former NSB chairman and now going after him following his wife’s (former Chief Justice Shirani Bandaranayake) un-ceremonial fall from grace.

Various attempts by the Treasury to raise money hasn’t worked and when the expected cash (NSB bond issue) was being delayed, ‘fury’ has taken over and succeeded over rational thought and obligation to thousands of depositors at the bank. A good man (Sirisena) who refused to quit when asked to as he had done no wrong, was then ordered to leave. His replacement, W.A. Nalani, a veteran banker, will fast-track the bond issue and a Thursday meeting with President Mahinda Rajapaksa and officials headed by Jayasundera was meant to push home the point that the loan must be expedited.

The NSB is the country’s premier savings institution and considered the safest investment for thousands of middle and lower middle income Sri Lankan depositors. It’s not an investment bank, not has it done any (sizable) foreign trades or investments. Its mandate provides for 60 per cent of the investments to be made in treasury bills and government bonds, which are low return instruments but also at minimal risk. The bank has traditionally been averse to risk and in recent times the debate has been growing as to whether the investments should be spread far and wide into higher return instruments at a higher risk, the route used by all commercial banks. In some cases, the NSB has been dumping 90 per cent of its money into bills and bonds, playing safe in the process. That’s why depositors were horrified, when the share market scandal exploded last year, leading to a run on the bank.

With the $1billion bond issue accounting for 1/5th of the bank’s assets, have the authorities considered the foreign exchange risk involved if and when the rupee depreciates in the future? With the money bringing in no return, the risk is greater and someone has to bear the loss – the Government or the bank. If the bank bears the loss, it would be playing around with depositor funds in an unproductive, no return investment.

A few weeks back, the viability of the loan was raised at a parliamentary meeting by opposition parliamentarians. In response, harried NSB officials said the loan was approved by the Cabinet and the NSB was borrowing on behalf of the Government. Such concern in opposition quarters may have prompted Sirisena to re-examine the loan issues.

The supply and demand scenario in financial resources is a nightmare for Jayasundera and his staff. The cash flow is just one-way: money going out, nothing coming in. Treasury efforts to secure a $1billion loan for budget support from the International Monetary Fund (IMF) failed while a request to the World Bank for a $750 million facility is in the pipeline.

The longer the delay, the higher the cost becomes of funding infrastructure development and other projects. Immediate and urgent requirements are ‘borrowed’ from other ministry budgets (health and education for instance) and paid back.Ironically Jayasundera, at a public meeting on Friday to release the Finance Ministry’s 2012 annual report, urged state officers to be more efficient, a contradiction when considering the decision to sack Sirisena.

The proverbial story of the three monkeys “hear no evil, see no evil, speak no evil” aptly fits the state of play in Sri Lanka today where transparency has hit the lowest depths and the few, remaining, honest officials are being eased out.