Thursday, January 28, 2016

Banks have taken the easy way out – BUT at a huge cost to SL growth rate!

I went to meet our Corporate Relations Manager of the Bank with whom we have most of our dealings with negotiate a substantial loan to purchase a very good quality German Machine to be used in our business.

BTW it is not my business, though I act as the sole executive director of the Company, in which I do not have an ownership interest.

WE wish to finance 80% of the value of the Investment in the machine from this Machinery Mortgage loan which we hope would be passed to us at a favorable rate of interest. I have to prepare detailed budgets and cash flow forecasts for the Bank on how we intend to fund the loan interest and capital, and of course we are put through the ringer, as the Manager says, he puts this project proposal to the independent lending committee who look at all the documents, guarantees, and charges on assets to minimize their risk of loss.

So we were told that this committee has not knowledge of the client and will independently asses the viability of the project, and will only grant the loan upon their being confident that the risk is worth lending to!

By the way, I just heard that the offer price the supplier has given us which expires shortly, if not agreed upon by us by the due date will expire and the Euro price of the machine will go up by 5% immediately. So with the mortgage loan what is the bank worried about as they can easily sell this machine for a lot more than the loan amount too!

I am highlighting this to compare with the massive burst of 100% leases granted by the same and other banks with their eyes closed on cars in the last 3 years, amounting as much as Rs100B, hence the glut of cars and absolute nightmare on traffic, which additionally has a negative effect on SL’s growth rate.

This machine will allow us to get export orders as the quality of our labor force is excellent and well trained in this field, and will no doubt help the SL economy in many respects as we employ 100 skilled machine operators, mechanical and electrical staff to operate our business.

The litany I have to say is that Banks as a rule give corporate borrowers, those who are the BIGGEST contributors to Sri Lanka’s growth rate, a very hard time in both assisting with loan financing and also with having to mortgage every thing they owe, at high interest in order to finance Company investment which inevitably leads to growth and more importantly adds to the growth of the Economy proper.
It is important therefore that the pundits who are talking of bringing foreign investment to Sri Lanka, first assist tired and tested local companies to expand where they have the knowledge and wherewithal to do so without being treated like lepers, and beggars at the mercy of usurious banks that have not only made surplus profits forever, they employ the best of the Country, who are paid the highest wages, but who could if they were working in non bank industry, have contributed more to the Nation’s Economy, as the Private Sector, and export industry CANNOT match the salaries paid by the banks for these staff.

A bank job is at the top of the job desires, and then the Govt. job, the growing Private Sector Industrial and Commercial come way behind in people’s perception of good jobs, when they are the main contributors to the engine of Sri Lanka growth.

SOMETHING IS WRONG HERE and needs to be fixed FIRST before any of the PM’s grand plans for the future can even start to show results.

So I have now found fault with the Banks on many scores and accuse them of treachery to Sri Lanka:

1                   Lending to rich jokers to drive Benzes
2                   Extracting usurious interest rates from borrowers, which stifle growth, and prevent many profitable ventures from even starting.
3                   Request for too many conditions in lending, especially having to mortgage personal property of directors to lend to Companies.
4                   Having too much of a spread between borrowing and lending rates, affecting both savers and borrowers, the beneficiary being the bank.
5                   Grabbing the best and brightest from the pool of labor, into wholly unproductive work that mutts can actually do.
6                   Having done this for 60 years banks have been the direct result that SL per capita is NOT US$10,000 today.
7                   Sri Lanka has good entrepreneurs who the banks should have lent to , instead politicized borrowers have taken money and disappeared affecting their bad loan proportion that directly affects good borrowers who are thus penalized.

It is time to change the Bank culture drastically. Firstly educate their new intake on how a country can grow in the 4th Industrial Revolution. They have to be more liberal to lend to small entrepreneurs for say boutique hotels, small businesses that have good ideas, and the like. These ARE NOT traditional businesses but those of the new growth industries, and the whole fuddy duddy bankers are still living in their cocktail party circuit not realizing the world has changed as they are secure in high salaries and pensions!  

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