Banking is one of the most vital sectors in the economy, with its ripple effects felt across all other sectors of the economy and social life. Whenever the country faces a calamity, the banking sector plays a major role in restoring the economy. This was witnessed after the war and the tsunami.
The present pandemic is the biggest crisis that Sri Lanka, and indeed the whole world, has faced in living memory. The last such pandemic, the Spanish Flu, occurred exactly 100 years ago. That killed more than 50 million and we fervently hope that with today’s medical advances, the mortality figure will not come anywhere close to that.
But what is indisputable is that the entire world economy has taken a huge battering. This is especially so for vulnerable economies such as ours. Our pragmatic leadership valued human life over the cost to the economy – which was the correct decision. But now we have an opportunity to recover economically, while taking the necessary precautions against a possible second wave of the disease.
Regardless of the effects on the rest of the economy, our banking sector, both public and private, was resilient enough to withstand the crisis. They quickly scrambled to offer the usual banking solutions to the public by reaching out in various different ways, from mobile ATMs to Internet Banking.
But the banks have a bigger, more important role to play in the post-pandemic era. They must support the country’s efforts to get back on its feet after the massive economic devastation. President Gotabaya Rajapaksa alluded to this on Thursday, when he requested the banking sector to deviate from conventional thinking and practice to support the country’s effort to rebuild the economy badly hit by the Covid-19 pandemic.
In the President’s own words “the biggest challenge we face right now is rebuilding the collapsed economy. It will take a long time for the apparel industry to recover. The tourism industry also has suffered a serious setback. A very large amount of revenue and jobs have been lost. The old economic model based largely on imports is no longer viable. We must move towards a production economy. The banking sector can make a huge contribution to make this a success”.
The Government has extended a helping hand to the banking sector itself, with the Central Bank providing many concessions over the last few weeks. Now it is time for the banks to go beyond simple retail banking and become more intimately involved in the drive for national renewal that has already been started in earnest.
The priority at the moment is to strengthen the production economy to replace the present import-driven economy. There are many areas where investments could be made in this regard. The plantation industry including tea cultivation, small and medium scale industrial production, housing and other constructions, agri-based products and value added agricultural exports are some of them. The President has requested the banking community to provide loans at concessionary rates for these sectors.
Banks must now focus on how they could contribute to this national effort. As the President noted, it will not be possible in the long term to continue with the easy practice of earning profits by providing loans to import vehicles (with the exception of agricultural and construction vehicles) and non-essential products. More loans should be directed to newly identified priorities. Otherwise, both consumers and entrepreneurs will suffer.
Banks have another vital role. They must ensure that various segments of the populace do not turn to the informal lending sector to tide over their woes in desperation. Banks must open their doors to all. As the President observed when farmers, for example, obtain loans at higher rates from private sources they and their harvest easily become victims of exploitation. It is not healthy at all. Banks should assist not only large scale businessmen but also farmers. After all, those who had defaulted loans in the past are not the poor but mostly the rich individuals and companies.
The banks must also step forward to help the commercialization of many inventions that have seen the light of day amidst the coronavirus pandemic. A number of products from a locally made ICU bed to medial robots have been invented by local inventors from the Security Forces, schools and private companies. Many of these products can be commercialized if financial assistance is available. Some of these products can even be exported to the region, having proved their worth here already.
The coronavirus has given the banks an unexpected opportunity to reach out to the community. Indeed, the banks must go to the community instead of the other way around. This is especially so in rural areas, where the nearest bank branch may be more than 10 Km away, leaving a vacuum for the less formal elements to step in and exploit villagers. But if the banks can come regularly to their doorsteps and/or devise other means of keeping them in the formal naming system, it will benefit the wider economy as well. It is vital at this stage for the banks to support the rural SME sector which is a lifeline for many. The same applies to tourism projects in the hinterland, which may not enjoy the level of support that the big hotel projects get. The banks now have a golden opportunity to get their act together and pool their resources to enable the country to emerge from this pandemic with the minimum of economic damage.