Oct 30, 2015 (LBO) – Sri Lanka’s Central Bank Governor Arjuna Mahendran on Thursday slammed inefficient state-owned enterprises as they have created losses in state banks while giving a free ride to private banks.
“We have two government-run banks funding very large state enterprises whether its airline, the electricity company or the petroleum company,” he said.
“All of which are run on significant lending by the government banks. So the government banks have to offer fairly generous terms to these institutions.”
Mahendran said as a consequence they tend to make losses and to recover those losses they have to widen the spread they charged between their deposit and lending rates.
“At the end of the day, that intermediation cost is really what makes our profits as an industry,” he said.
“But the point is, if those inefficiencies are allowed to persist in the two large government banks it means that the private banks are getting a free ride on these inefficiencies.”
As a result the whole society suffers because they pay too much for our loans relative to the cost of funds, Mahendran said.
“We have to find a way to make our public enterprises more efficient so that we can basically make the banking system more efficient and make the economy grow faster.” he further said.