Abstract:
The importance of banking for the economic development of a country need not
be over emphasized. A less developed country like Sri Lanka, striving for
economic advancement should have to develop its banking system.
In the early post - independence period the commercial banking system in
Sri Lanka was dominated by foreign banks which were almost exclusively
engaged in the financing of the plantation sector and the import - export trade.
The Bank of Ceylon was established in 1939 under the Bank of Ceylon Ordinance,
with a view to catering to the banking requirements of the indigenous population
which had little or no access to the foreign banks. With a view to getting Bank of
Ceylon to have a greater involvement of economy of the country, the bank was
nationalized in 1961. With the introduction .of open economic policies soon after
1977 bank had to face severe competition due to opening of foreign banks and
locally incorporated commercial banks and development banks.
Despite severe competition the B. O. C. remains as the premier financial institution
in Sri Lanka, with a 28. 95% market share in total commercial banking assets and
24 .62% in advances.
The Sri Lankan economy has experienced a considerable augmentation with the
inflow of long term credit from two state banks. As the market leader B. O. C. has
played a significant role in the field of credit, injecting funds to the all sectors of
the economy. Even the state corporations and organizations have obtained credit
from the bank up to Rs. billions.
Although the B. O. C. is the market leader and owns one fourth of market share in
advances, after 1990 bank faced problems due to unprecedented increase of non
performing advances which caused to provide Rs. 2 .5 billion for bad and doubtful
debts in the year 2001.
The study has given special attention to this matter and implication of credit
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management of B. 0. C. to the bank itself and to the economy of the country.
Recovery of loans and advances is important for the entire credit management
process from appraisal stage to recovery managements stage.
Through an analysis of the existing practices of credit management of B. O. C. the
writer discussed the weaknesses and their implications to the profitability of the
bank. As the B. 0. C. is a state owned bank the study has given special attention on
the consequences of the government intervention for credit management activities,
and steps taken by the government to protect the bank from time to time by
issuing government restructuring bonds, covering govt, guaranteed loans.
More weightage has been given to the recovery management and credit appraisal.
In the context of recovery management writer has attempted to conceptualize the
recovery management process and considered the N. P. A. portfolio of the bank, as
a saleable product, under marketing aspect, and formulated strategies accordingly.