Financial sector confronted with HR, IT and Tax issues amongst others, say experts
With the island’s monetary watchdog recently setting the master plan towards the consolidation of the country’s financial sector, experts at a panel discussion last week suggested that the sector will be faced with numerous practical issues with some needing further clarity from the regulator. Outlining the challenges, Shiluka Goonewardene, Principal for Transactions and Restructuring at KPMG in Sri Lanka said that some of the key issues in the diligence process of amalgamation would be in relation to analyzing the quality of credit portfolio, completeness of deposits, valuation of plant, property and equipment, valuation of investment in real estate portfolio, valuation of investment in private companies, robustness of systems and procedures and tax compliance.
“One of the grey areas in the amalgamation process is in the calculation of taxes. Amalgamation should be tax neutral at least for the financial institutions. If there is no tax neutrality but additional taxes, the whole process of consolidation will not work,” KPMG Principal for Tax and Regulatory, Suresh Perera cautioned at a packed conference on consolidation held at the Galadari Hotel in Colombo last week.
Other issues mentioned were in relation to Human Resource as with consolidation there would be a risk of talent losses in the sector with some employees feeling uncertain of the future and looking for jobs elsewhere.
“End of the day, we could balloon our staff and face losses so maybe we might need to look at VRSs. The other issue will be in creating trust where it has been difficult to ink collective agreements as the Ceylon Bankers’ Union has become very powerful and were even blocking recruitments from outside,” Isuru Tillakawardana, DGM of HR Management at Commercial Bank said.
Meanwhile, commenting on the move towards consolidation, Chairman, Finance Houses Association of Sri Lanka and Director/CEO Softlogic Finance PLC Nalin Wijekoon said they were positive about the plan since the recent issues in few troubled firms had affected the industry as a whole.
“For example, if you take small under-capitalized companies such as CIFL represented a mere 0.43% of assets in proportion to the asset base of the industry. But the impact from its failure to the industry has been huge,” he pointed out adding the Central Bank had taken a ‘bold decision’ despite the challenges prevalent in the implementation.
Noting that during the past few weeks, every other finance company has been talking to one another which had created some sort of confusion, he urged the CBSL to come forward and give a yardstick for price evaluation as negotiations have been difficult with some firms quoting fancy prices.
“The timeline given is very tight. It would have been best if Central Bank had required only NBFIs to merge with one another in contrast to banks also being asked to merge with NBFIs,” Chief Executive Officer, People’s Leasing and Finance PLC D. P. Kumarage said adding that prices quoted by some were actually ‘funny’.
The seminar held on the topic of ‘The Way Forward: Proposed Consolidation of Financial Institutions’ was organized by the Chartered Management Institute, UK’s Sri Lanka Branch, together with KPMG in Sri Lanka.
Speaking on the rationality of the whole process of consolidation, Assistant Governor at the Central Bank of Sri Lanka, C. J. P Siriwardene explained that with consolidation, Sri Lanka, will be better braced to face the ‘Middle Income Trap’ when it is expected to graduate to an ‘upper middle income category’ by 2016.
“Sri Lanka with its US $67 billion economy has now reached a per capita income of around US$ 3,300 by the end of 2013. We envisage a per capita income of US $4,000 by 2016. When we reach that level, we will need a strong banking sector in the country to take the economy to the next level,” he pointed out.
Siriwardena noted that the Central Bank’s target was for the country to have at least five US$ 1 trillion size capitalized banks along with at least one strong development bank. This he said will minimize vulnerability in the sector apart from ‘reducing the noise coming from the Parliament’.
“With the proposed merger between NDB and DFCC, their size will reach US$ 3bn and with that expansion we can mobilize US $500mn or US $1bn from overseas without any hassle,” the Assistant Governor elaborated.
- See more at: http://www.nation.lk/edition/biz-news/item/26189-challenges-in-consolidation.html#sthash.E6WJebxM.dpuf
With the island’s monetary watchdog recently setting the master plan towards the consolidation of the country’s financial sector, experts at a panel discussion last week suggested that the sector will be faced with numerous practical issues with some needing further clarity from the regulator. Outlining the challenges, Shiluka Goonewardene, Principal for Transactions and Restructuring at KPMG in Sri Lanka said that some of the key issues in the diligence process of amalgamation would be in relation to analyzing the quality of credit portfolio, completeness of deposits, valuation of plant, property and equipment, valuation of investment in real estate portfolio, valuation of investment in private companies, robustness of systems and procedures and tax compliance.
“One of the grey areas in the amalgamation process is in the calculation of taxes. Amalgamation should be tax neutral at least for the financial institutions. If there is no tax neutrality but additional taxes, the whole process of consolidation will not work,” KPMG Principal for Tax and Regulatory, Suresh Perera cautioned at a packed conference on consolidation held at the Galadari Hotel in Colombo last week.
Other issues mentioned were in relation to Human Resource as with consolidation there would be a risk of talent losses in the sector with some employees feeling uncertain of the future and looking for jobs elsewhere.
“End of the day, we could balloon our staff and face losses so maybe we might need to look at VRSs. The other issue will be in creating trust where it has been difficult to ink collective agreements as the Ceylon Bankers’ Union has become very powerful and were even blocking recruitments from outside,” Isuru Tillakawardana, DGM of HR Management at Commercial Bank said.
Meanwhile, commenting on the move towards consolidation, Chairman, Finance Houses Association of Sri Lanka and Director/CEO Softlogic Finance PLC Nalin Wijekoon said they were positive about the plan since the recent issues in few troubled firms had affected the industry as a whole.
“For example, if you take small under-capitalized companies such as CIFL represented a mere 0.43% of assets in proportion to the asset base of the industry. But the impact from its failure to the industry has been huge,” he pointed out adding the Central Bank had taken a ‘bold decision’ despite the challenges prevalent in the implementation.
Noting that during the past few weeks, every other finance company has been talking to one another which had created some sort of confusion, he urged the CBSL to come forward and give a yardstick for price evaluation as negotiations have been difficult with some firms quoting fancy prices.
“The timeline given is very tight. It would have been best if Central Bank had required only NBFIs to merge with one another in contrast to banks also being asked to merge with NBFIs,” Chief Executive Officer, People’s Leasing and Finance PLC D. P. Kumarage said adding that prices quoted by some were actually ‘funny’.
The seminar held on the topic of ‘The Way Forward: Proposed Consolidation of Financial Institutions’ was organized by the Chartered Management Institute, UK’s Sri Lanka Branch, together with KPMG in Sri Lanka.
Speaking on the rationality of the whole process of consolidation, Assistant Governor at the Central Bank of Sri Lanka, C. J. P Siriwardene explained that with consolidation, Sri Lanka, will be better braced to face the ‘Middle Income Trap’ when it is expected to graduate to an ‘upper middle income category’ by 2016.
“Sri Lanka with its US $67 billion economy has now reached a per capita income of around US$ 3,300 by the end of 2013. We envisage a per capita income of US $4,000 by 2016. When we reach that level, we will need a strong banking sector in the country to take the economy to the next level,” he pointed out.
Siriwardena noted that the Central Bank’s target was for the country to have at least five US$ 1 trillion size capitalized banks along with at least one strong development bank. This he said will minimize vulnerability in the sector apart from ‘reducing the noise coming from the Parliament’.
“With the proposed merger between NDB and DFCC, their size will reach US$ 3bn and with that expansion we can mobilize US $500mn or US $1bn from overseas without any hassle,” the Assistant Governor elaborated.
- See more at: http://www.nation.lk/edition/biz-news/item/26189-challenges-in-consolidation.html#sthash.E6WJebxM.dpuf
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