Rienzie Wijetilleke explains why the Monetary Board must be independent

Compiled by Isanka Perera

Q: In recent times, Sri Lanka’s monetary policy milieu has been in deep waters. In your opinion, how is the country’s economy faring amidst this instability?
A: Monetary policy is the spine of any nation’s economic policy. It’s generally a long-term action plan that is designed by the Monetary Board of the Central Bank of Sri Lanka, which comprises knowledgeable individuals. From blue and white-collar workers to well-established financial institutions, the entirety of the economy is impacted by its policy moves.

In Sri Lanka however, the head of the monetary board and governor of the central bank have changed regularly over the past few decades. With each new governor, we’ve witnessed drastic and unhealthy changes in the fundamentals of monetary policy.

Although I worked with five governors during my long tenure in the commercial banking sector, we as bankers didn’t see any major changes in the policies implemented by the monetary board – except for minor adjustments due to the political leadership handling financial matters during some periods.

Miscalculated changes in monetary policy lead to high and widespread inflation, and impede economic growth in numerous ways.

Q: As a veteran of the banking sector, what is your take on the progress of financial inclusion in Sri Lanka?
A: All individuals and enterprises are well-informed, and have fair and equitable access to a range of high quality, appropriate, secure, and affordable financial products and services. This is crucial for improving their living standards and economic growth of a country.

When evaluated as a segment of the regional financial market, the contribution made by Sri Lanka is minuscule. In the context of other South Asian countries nevertheless, our nation has achieved a high degree of financial inclusion.

There is also evidence that many Sri Lankan households have accesses to multiple financial institutions for their fundamental credit and savings needs. Yet, there’s further scope for improving financial inclusion – particularly in relation to the cost and quality of financial services.

Q: Is the finance services industry likely to consolidate and reshape itself going forward?
A: The consolidation of financial institutions is generally driven by attempts to exploit economies of scale and scope. Sri Lanka’s financial services industry is a ferryboat moving through stormy weather.

When crisis situations of this magnitude arose in the past – such as the terrorist attack on the ‘Twin Towers,’ Central Bank bomb blast and Grindlays Bank fire – Sri Lanka’s financial services organisations, commercial banks, and leasing and pawning institutions among others came together under the regulatory authorities. They then took various steps to cushion the negative impact on the community.

Similarly, consolidation of the industry is inevitable; but what shape it takes depends on the nature of the measures adopted as well as the depth of a crisis. However, the industry will certainly move forward.

Q: Could you highlight the main concerns relating to regulatory and supervisory matters?
A: Sri Lanka’s broad macroeconomic and microeconomic development will at all times be affected by the political changes that take place under the country’s style of democracy. The supervisory and regulatory authorities will not directly make any fundamental changes of policies, in the monetary and economic setups.

However, political appointees such as heads of these organisations may – at different times under diverse agendas – implement changes to suit the political needs of certain individuals.

In my time in the commercial banking sector, professionals were consulted regularly on these matters.

In the face of the economic crisis Sri Lanka is facing today, policy makers are struggling with the challenge of managing sovereign debt repayments while meeting domestic needs. The nation’s regulatory authority is responsible for having let the crisis worsen under its watch, and experts are suggesting an alternative monetary policy regulator and debt reform.

Q: How do you envision the industry in a decade from now?
A: Sri Lanka’s financial services industry has withstood difficult situations through proper management and continued to serve the community. To be successful, it will need to embrace emerging technology, remain flexible and adopt evolving business models, and put customers at the centre of every strategy.

With proper management, it will continue to render equitable support to the community it serves while making good for itself as well. The institutions will maintain financial stability, particularly to support the weaker areas of society through various CSR programmes.

Every nation, as well as industries within a country, has its inherent strengths and weaknesses. It is up to the authorities at the time to allow the financial services industry to continue to grow – both in the context of services and stability.

My expectation is that the coming 10 years or so will mark the beginning of a new era in local banking, in which the sector will move from a decade of resilience to a period of divergent growth.

The interviewee is a former Chairman and Managing Director of Hatton National Bank (HNB); onetime Chairman of HNB Assurance and HNB Stockbrokers; and an erstwhile Chairman and Director of the Colombo Stock Exchange (CSE)