By Sandun A. Jayasekera

Sri Lanka will incorporate its EXIM bank with an initial capital of Rs. 2 billion by August this year under the provisions of the Companies Act, Central Bank Governor Ajith Nivard Cabraal said today.
 

Cabraal told Daily Mirror that it is proposed to issue shares with voting rights and equal rights to dividend and surplus assets amounting to Rs. 2 billion valued at Rs. 10 each to raise Rs. 20 billion to be subscribed by Government of Sri Lanka and leading state financial institutions.
 

“Sri Lanka is currently well positioned to fast-track its economic growth to improve the Economic welfare and elevate the living standards of the population to a higher level in view of  favorable fundamentals in many fronts, inclusive of peace consequent to the defeat of LTTE, re-unification of Northern and Eastern provinces with the rest of the country, a stronger government and political stability, improved foreign investor confidence, low inflation, moderate interest rates and the prospective recovery of the global economy,” he said.
 

Cabraal said EXIM Bank is set up to promote and finance international businesses such as exports, imports and investments overseas. In most countries, EXIM Banks are state owned /sponsored specialized banks that provide financial and promotional support for international business and perform an agency function of the government on overseas businesses.
 

EXIM Banks of China and India are examples and they function as agent of the Government in overseas businesses.
 

 In general, the business operations of EXIM Banks include credit facilities to exporters, foreign buyers of exports, small and medium enterprises (SMEs) catering to exports and imports of priority sector products, export credit insurance and factoring, letters of credit services for importers, foreign exchange, investment consultancy, securities trading, inward remittance services, Cabraal emphasized.
 

The sources of funds include capital, local and foreign borrowing, refinance schemes and borrowing from the Government. Mobilization of deposits is generally not authorized as EXIM Banks are not conventional banks that engage in deposit-taking and lending. EXIM Banks in other countries generally operate with profits at different levels depending on the business model and management efficiency.
 

Sri Lanka is relatively an open small economy with a significant dependence on foreign businesses. The import /export trade and other foreign transactions account for about 80% of GDP while Sri Lanka’s economic growth has posted an average growth of 6% in the past five years. Therefore, significance of international business to provide impetus of economic growth of Sri Lanka is reflected in the aforementioned indicators, Cabraal stressed.
 

Promotion of international business requires types of finance and services that are generally provided by EXIM Banks. The institutional support available at present in Sri Lanka is inadequate for this purpose. Though commercial banks provide export and import credit facilities to established customers on commercial terms, banks are reluctant to finance new businesses.
 

Services of the Export Development Board and Sri Lanka Export Credit Insurance Corporation have not expanded adequately and their future scope for expansion is limited. Further, promotion of international business will require specific policies which should be implemented and monitored by the state sector, he said. 
 

As EXIM Banks undertake specific business operations facilitating foreign trade and investments, establishment of an EXIM Bank would be beneficial for the promotion of international business.
 

The Monetary Board has already approved the establishment of the proposed EXIM Bank, he added.