Banks – it is time we force them first to reduce spread by reducing lending rates!

If you read my previous blog post you will realize how detrimental Sri Lanka banks have been to the growth of Sri Lanka. Ironic isn’t it, because if you listen to a pompous banker, you would think they are solely responsible for all the growth. Actually the way they have squeezed money out of people is just unforgivable.

Now they make at least Rs1Billion a day (gross) on just holding the remittances from expatriates for an additional 3 days, before putting it into their accounts, and many keep lakhs in current accounts to benefit the banks.

No wonder they can waste money on branches, AC and high salaries they pay themselves from these super profits, that they even hide from the tax man by wasting on over the top expenditure. It is simply a jobs for the boys kind of club.

It is time for them (and I believe we are over-banked in terms of competition) to reduce their costs, reduce their salaries as the market rate is MUCH less (tell the banker that!) 

They can only do this if they are forced to reduce spread, and give the saving to the investor, who borrows to build their business. It’s a no brainer, to realize that that is one easy way to spark and spurt investment in the Sri Lanka economy, without costing the Govt. a cent.

Just imagine, even I would at 8% borrow to improve my dairy herd, thereby increasing milk production, and reduce the need for expensive low quality powdered milk imports from New Zealand. I hope the reader realizes that at 12% I just cannot make the investment work, but at 8% I can.

I am recommending that there is a provision in the Constitution to force all banks to do so for the benefit of the Country. Their inbuilt profitability when compared with their peers overseas is just not acceptable, though it is common practice in Sri Lanka.

First I would as a Govt. say we are going to have it written into the Constitution, so they will hopefully, act in time to make the change before that is done, and prevent this by taking action in advance to remove that allegation.

We must look at all areas that are barriers to growth, and whilst the Finance Ministry is obsessed with improving the ease of doing business index there are more important matters that WILL ACTUALLY EASE DOING BUSINESS!!