One of the most economy friendly budget proposals presented by Finance Minister Mangala Samaraweera is to allow two leading state banks; Bank of Ceylon and People’s bank to be listed in the Colombo Stock Exchange (CSE), having a significant impact on CSE as well as the entire economy.
Even if Sri Lanka is well ahead of other counterparts in the region in terms of literacy rate, we as a country cannot be satisfied with the financial literacy. It is under such a circumstance that certain objections are being made on listing these two banks.
Even though this has been a topic among the stakeholders over the years, the government could not put it into action, due to various reasons, especially protests by trade unions. Truth is that the majority of Sri Lankans want almost everything to be under state control, as they think it is the safest. However, until this attitude is changed, the developing the nation has to be postponed.
Therefore, this must be looked into in an economic perspective, having discarded different political ideologies.
Because the government plans to keep the majority shareholding, giving about 10% to the public, these institutions will not be privatized or owned by a private investor. Although protests were made, due to fears of any privatization, when Sri Lanka Telecom was going to be listed in 1997.
Its majority shares are still owned by the government. Thus far, those that benefit from receiving interests will be given an opportunity to be shareholders and receive dividends in the future.
Profitability can be increased by making necessary reforms and fully utilizing large assets base. Banks are allowed to raise the capital via the stock market. After being listed, they are bound to submit quarterly accounts and annual reports to the CSE, in order that depositors, investors and other stakeholders can know financial performance in the company and predict its future cash flows.
It is needless to say that this improves the level of transparency in companies. Furthermore, stock brokering companies always make researches on listed firms, so that their clients will be informed of companies suitable for possible investments. Accordingly, the public will be well informed of these institutions to be listed in the future.
Public enterprises are said to come under state interference under any government. This criticism can be avoided, when listed firms are bound to comply with CSE rules and regulations. Profit can be taken out as dividends alone.
In conclusion, it has to be stated that this proposal was made, when the Colombo stock Exchange was in dire need of such proposals to be boosted. For a stock market to be a well-performing one, there have to be higher number of listed firms as well as investors. The CSE still has 296 listed firms.
The majority in the country is away from the stock market, especially due to lack of financial literacy. Foreign investors will be further encouraged to invest in the market, when these kind of large firms are being listed. Although this action will be taken as a revenue generating measure, it spontaneously raises market liquidity as well. Hence, it ought to be appreciated in an economic sense.
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