Sri Lanka’s Central Bank Governor urged top banking and non-banking sector officials to “put their thinking caps on” in order to ensure that financial sector consolidation can be a seamless transition into something new, exciting and sustainable.

“With the discussions you would have and the debate that will continue you will be able to resolve most of the existing issues and the new issues that would crop up,” Central Bank Governor Ajith Nivard Cabraal told a banking forum recently.

The Governor admitted that there would be many challenges in the consolidation process.

“There are many challenges and one of them is the tax challenge. The President also articulated in his budget speech that there is a deep commitment from the political hierarchy of the country as well as from the finance ministry.”

According to Cabraal, this ensures there will be support that will be given to all the institutions in order to move forward with this scheme.

The Central Bank has enunciated two underlying principles in this process. The first is, there must be tax incentives.

“There cannot be a tax burden on any one as a result of this exercise. The tax laws will be framed in consultation with the private sector to ensure there is no burden but incentive for the consolidation to take place,” the Governor noted.

As the second principle, Cabraal pointed out that as a result of the consolidation, there won’t be a single institution that will be made weaker but will be made stronger.

“If there is any area where there is going to be a weak institution, we will step into strengthen it so that the final outcome would be a combination of stronger institutions than what existed. We want to ensure that 1+1=3,” he noted.

Cabraal stated that within the consolidation process there would be labour issues as well.

The Central Bank together with the government has given an assurance that the number of staff will not be reduced.

“We want to ensure that a sector that is growing and which will grow in the future is not going to retrench today and search for people tomorrow,” he said adding that it is not a very good way of handling consolidation of this nature.