Sri Lanka mulls limits on bankers' bonuses

This is part of moves to strengthen the regulatory framework of the banking sector, the central bank said in its financial system stability review for 2010.

Fitness criteria now applicable to board members will be extended to key bank executive staff under plans to improve corporate governance.

"To strengthen the corporate governance in banks, the fitness and propriety criteria applicable to directors will be extended to executive staff performing key functions in banks," the report said.

"Bonuses and compensation packages of bankers is currently being examined to ascertain if excessive remuneration is being provided and limits may be imposed if considered necessary."

The central bank is also preparing guidelines on consumer protection setting out the minimum standards of conduct when banks deal with customers to reduce "unfair and unethical business practices by banks".

Amendments to the Banking Act have been finalized with provisions to enable the consolidated supervision of banking groups to facilitate mergers and acquisitions for the consolidation of the banking industry and to strengthen bank resolution measures.

"Directions on integrated risk management and Pillar II of Basel II which relate to additional prudential requirements following the supervisory process to further strengthen the capital planning process of banks, will be issued shortly," the central bank said.

READER COMMENT(S)

8. KC Mar 13

@Mahisha. The US banking sector is not solely on Investment banking based. It started with the Property crisis, which was due to bad loans given by the regular banks. They waer forced do that, because they had to show "Profit increase % of three digits for year after year".

Investment bankers ware just funding bad loan decisions of the commercial bankers.

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I personjally think that when bankers get together they boast to each other how they puit each customer down using the "Banks policies"

If a person is earning ten times his/her salary as bonus year after year, either he is grossly underpaid, or the organisation is making un-due profits.

to some extent, The problem with banks is that they are managed by pofessionals. The best way for the professionals to make money is either by having a big salary or a big bonus. As a salaried employee one is not concerned about the long term sustainability of the bank.

I think, the regulators should prohibit all CxO level employees to get bonuses. they will get a big salary, but they can keep that job year after year if they show profits to the boad of directors.

Even othersise, instead of bonuses, the companies should implment long term stock options (may be as part of there pension fund), where bankers will get paid, if the investors get dividents.

That will be good motive for them to deliver sound-long term decision rather than 300% booked profits, that is going to get wiped out over night in a credit crisis.

7. Mahisha Mar 11

@Theagarajah: sir / madam, can you explain how "Banks manipulate their profits" - with respect to Banks in Sri Lanka (not foreign examples please). You would have some facts to back that claim. It should be relatively easy to quote financials with page numbers etc for us to verify this claim, for ourselves.

@Kamal: Wall-street = Investment Bankers; not those in the line of business as our Sampath / Commercial etc. Different Business model - totally different risk profile. And there still is debate about bankers pay, even there.

@Siri Sangabo: re comment first paragraph, what is the NPL ratios in LK vs other countries? While not justifying imprudent lending practices, such an interest spread is there to cover such NPLS. For those who are interested, you can check pg 25 on the recently concluded Onion Bank prospects, data sourced Source: Fitch Ratings Presentation – “Sri Lanka Poised for Growth: Are the Banks Ready?” Agree with para 2 and 4. I am sad at your take on para 5. Some of these execs, Directors would have started working at a very low salary at a audit firm, and worked their way through. Nothing is for free - why is it that some people always assume that people who do well in life, do not deserve it?

6. Siri Sangabo Mar 11

Long overdue!
Hope the governor also looks at interest spread. Sri Lanka is perhaps one of the few countries where such a wide gap exists.A bank will pay a customer 3% per annum interest for his savings but charge over 14% for a loan.

Then on their credit cards they deviously quote interest rate per month. The Central Bank should make it mandatory to quote all rates per annum.

Some banks seem to be taking advantage of their clout to suck the life out of individual customers, especially the ones that have many credit card gimmicks.

The CB should also regulate some of the misleading communications by some banks.

Look at the super luxury vehicles used by Bank Directors and Executives, Wonder of Asia !

5. Theagarajah Mar 11

This is a good move.Banks manipulate their profits to increase their bonuses.These manipulations directly affect the Share Holders who have made investments in Bank shares.

4. kamal Mar 11

This is not a bad move at all.....even in the US there is intense debate to cap bonuses of wall st. execs

3. Siripala Mar 10

How can Banks and Bankers be making profits and bonuses when the 'real economy' is struggling to such a degree.

2. Banker Mar 10

This certainly is over regulation.
First CBSL pundits should check their health (mental)

1. Mahisha Mar 10

Sigh, this is a bad move. Private sector should decide the pay for private companies.