Consolidation should be left solely to the entities: Committee Report

The committee appointed by Prime Minister Ranil Wickremesinghe to determine the feasibility of the Central Bank’s Financial Sector Consolidation Plan has expressed that the government should only act in a regulatory capacity to create an environment conducive for consolidation.

The report said that the decision to consolidate should be left solely to the entities, and the government should not enforce mergers. It noted that entities were coerced into merging without conducting proper valuations, with unrealistic timelines and vague penalties for non-compliance.

The committee found that though consolidation is a natural business activity, a very limited number of entities have found success after even a voluntary consolidation.

It advised that chance of failure would be even greater when pressured by the Central Bank to merge in a limited time frame.

The consolidation of Non-Banking Financial Institutes would also only cover the capitalization facet, ignoring weak governance structures, lapses in policies and weaknesses in the regulatory framework, according to the report.

It said that the enforcement was unwarranted, and called for a more assertive, transparent and engaging Central Bank.

The report also stated that certain entities had negative market sentiment stemming from the Central Bank grading them as A and B. It recommended that Master Plans should not be implemented haphazardly in the future.

The committee was headed by the Premier’s Economic Advisor and Former Commercial Bank Chairman Dinesh Weerakkody.