24th June 2001
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Hybrid for a better yield 

Excerpts from an Interview with Mr. Richard Rodrigo, Senior Manager - Marketing, Commercial Bank 

Q. It is seen that there is more emphasis on the Progressive Saver Account in your advertising campaign during the recent past. What are the main features of the Progressive Saver Account? 

A. This account was introduced way back in 1996 and it was a pioneering effort on the part of the Commercial Bank, because it was the first time that a Bank introduced a real hybrid between a Fixed Deposit and a Savings Account. It combined the high interest available on a Fixed Deposit together with the flexibility of a normal Savings Account. The high returns were ensured by paying a 25% bonus each financial quarter, provided no withdrawals had been made, in addition to the interest credited monthly. Depositors had that flexibility of getting the normal Savings rate of interest even when a withdrawal had been made. It was an immense success which enabled us to mobilize the targeted amount within a very short period and it has continued to be one of the mainstays on our savings portfolio. We increased focus on the Progressive Saver in our advertising campaign mainly because it was recently repackaged, in order to make it more attractive to the target groups. 

Q. What benefits are being offered to Progressive Saver Account Holders now and how will it differ from the other products in the market? 

A. When we introduced the Progressive Saver Account in 1996, it was the only such product and there were no competing products with similar features. Of course, as in the case of most Banking products, before long we found there were others coming up with similar products under different brand names. Thereafter, we recently conducted certain surveys among Progressive Saver Account Holders and found that this could be made more popular if certain improvements are made. As a result we decided to increase the bonus payable to 30% and also permit a withdrawal without the account holder having to lose the bonus. So, this was a marked improvement on the earlier product. The benefit for account holders is that they find the new flexibility of the Progressive Saver Account even more attractive and rewarding. 

Q. What additional benefits are available to holders of Progressive Saver Accounts?

A. In addition to the 30% bonus, holders of Progressive Saver Accounts are entitled to all the other benefits available under the normal Savings Accounts of the Bank, i.e. the CAT Card, the ability to operate accounts at any of our own 150 plus Delivery Points spread all over the island including Branches, Supermarket Banks (MiniCom Centres), ATMs Holiday Banking Centre and the Airport Counter. In fact, the ATMs and the Airport Counter are operational 24 hrs of the day. The Holiday Banking Centre and the MiniCom Centres operate on a 365 day banking concept. Just like all the customers of Commercial Bank, Progressive Saver Account Holders are able to operate their accounts from any of these places, irrespective of where the account is held. It must also be remembered that the CAT Card permits them to operate their accounts from any part of the world through any of the 600,000 Cirrus ATMs. 

Q. In addition to these benefits enjoyed by account holders, is there anything unique that Commercial Bank can offer to all their customers? 

A. Coupled with all this, the customer gets the benefit and the comfort of knowing that they are dealing with a Bank enjoying the prestigious credit rating of SLAA+ from Fitch Rating, the highest rating hitherto published by a Sri Lankan Bank. Furthermore, Commercial Bank received the Best Bank in Sri Lanka award for the 3rd consecutive year form the prestigious Global Finance Banking magazine, an award which is given based on the ratings of Thomason Financial Bank Watch. All this indicates the financial, technological and other operational strengths of the Commercial Bank. 

Q. What are the segments being targeted by the Progressive Saver Account? 

A. The main segments being targeted are of course the adults, which have the need and the capacity to save. We are offering them high interest of a Fixed Deposit coupled with the comfort of knowing that they could make a withdrawal and still earn the interest plus 30% bonus. Quite often this account is used by Account Holders as their second account where the disposable income is accumulated. We also find it popular among those who are saving for their children because they save without the intention of making any withdrawals till the children are grown up. 

Q. In addition to meeting customer needs, what are the other reasons for you to introduce such savings products from time to time? 

A. The main reason is we are a major national institution in this country and we have a role to play in improving the domestic savings level of Sri Lanka. As all of us are aware, development of any country depends on its Domestic Savings Percentage -Domestic Savings as a percentage of Gross Domestic Product. If this percentage is not upto the expected level it will adversely affect the economic, social and political stability of the country. In case of developed countries, this figure is even above 30% . Whereas, in Sri Lanka, this percentage is still around 17%. Therefore, mobilization of National Savings has become a priority in Sri Lanka particularly at a time like this when the capacity of the public to save is gradually being reduced.


  • Efficiency in the private sector, hah!
  • LECO - Powerless at times
  • Protect minority shareholders
  • Efficiency in the private sector, hah!

    I have heard in Colombo, ad nauseam, about greater efficiency in the private sector. Retired civil servants, young blood in the private sector all preach to me how much more efficient the private sector is, when compared to the public sector. It causes nausea because my everyday experience is entirely at variance with that oft-repeated mantram. Efficiency is a term, good economists use with a great deal of care because it is a rare condition in the real world.

    Given purchasing power in the hands of consumers an economy is efficient, when the allocation of resources cannot be changed without affecting adversely the welfare of its members. A household economy, a village economy or a national economy may be on or away from the efficiency frontier as so defined. 

    One would immediately see how rarely those conditions could be satisfied and therefore economists are careful in using the term. The tool of analysis here is a general equilibrium model.

    There is another sense in which, mostly engineers use the term. Given a certain volume of resources, what is the maximum output one can get from them? 

    That which gives the maximum is the most efficient. Or to get some given output, that technique which minimises resource use is the most efficient. 

    I presume, it is in that sense that pundits hold forth that the private sector is most efficient than the public sector.

    Those who talk about getting maximum output with minimum cost are talking nonsense. The tool of analysis is a linear programming model. What has been my experience? During the last five years when I have lived in Colombo, in virtually every encounter I have had with private sector firms, they have exhibited horrendous inefficiency.

    Servicing airconditioner
    Firstly, I asked a well established firm to service routinely my air conditioners. I had to call them about a dozen times before some workmen came to examine the unit. They went back promising to come back the next day and I stayed at home to let them have access to the equipment. Of course they did not turn up and there was no warning to say that they would not. This rude and wasteful game was played for many days, until I called up the president of the company, who happened to be my friendly physician, and complained and then they turned up without warning and, of course, we were not at home. Several more telephone calls and the job was done but I had to supply a ladder. It happens every six months when the air conditioners are serviced and now I simply ask the president of the company to schedule a routine service job! That this is the general rule with this company was revealed, when a head of a European cultural institute complained to me that his airconditioner had not been attended to for six weeks despite many reminders. Again I had to call the president of the company to get the job done. One can achieve the same results if one calls the head of a government department and it is most likely to be done at greater speed and with fewer reminders.
    Repairing car
    Secondly, I bought a new car five years ago from one of the oldest firms in Colombo. I take it there for scheduled servicing and minor repairs. They have never delivered the car on time. Once the work has been done, paying up takes at least one hour with papers moving from one desk to another and each bureaucrat placing one more frank and signature. And, of course, they would not accept a cheque and I have to carry bundles of currency notes in this bandit-ridden city.
    Defective fax machine
    Thirdly, I gave my fax machine for repairs to the identified local agent of the manufacturer and they charge me Rs. 1,650 just to examine it. It was returned to me saying that there was nothing wrong with it. I asked them whether they actually sent and received messages on it and they assured me that they did and it functioned well. Well, it did not work on my desk although all other equipment worked fine. I called the company and they disclaimed all responsibility and insisted that the piece of equipment was fine in their labs. They clearly lied, but this time round I don't know the president of the company to call personally. The piece of equipment has been inert for the last three-and-a-half years occupying scarce space on my desk. However, that is not the way efficient economic agents function.
    Incorrect billing
    Fourthly, I organised a two-day seminar in a five star hotel in Colombo in May. I have done this sort of thing in many parts of the world and knew pretty much what I was about. Since the last of the participants was leaving at three the next morning, I went at 10.30 that night to settle the bill. 

    It took me two good hours to settle the bill, because there were so many errors in it, some of which I had no doubt were entered with fraudulent intent. Virtually every entry for a guest had to be verified against invoice and my labour saved some Rs. 11,000 for the organisation which paid the bill. I had never in my life spent that much time settling a hotel bill even when it ran to a few thousand dollars.

    Finally, my computer monitor blacked out recently. The repair shop is in a place where parking space is scant in supply. I told them I would bring the equipment at a fixed time and hired a taxi to drive me there. I went up to the engineering section of this firm and a young man in a tie and shirt came up and asked me to wait till their meeting was over! 

    I was completely flabbergasted. After some persuasion, one of the men agreed to accept the monitor reluctantly and to my utter surprise instructed the doorman that no further customers were to be let in until he was instructed otherwise!!

    These are all the instances when I have had to deal with organised private enterprises. The experience with public sector agencies has been a deep contrast. The Immigration Department issued me a passport in about three hours and delivered it at the promised hour. 

    The officers at the airport have been models of excellence. The Grama Seva niladhari informed me that my national identity card would be issued in six weeks and it arrived a few days in advance. And I spoke to nobody for a favour! Now someone may argue that my sample is small and, perhaps, biased. For me this is no sample but my universe. Every experience I have had with the private sector drives home the point that they are a grossly inefficient bunch shouting out from rooftops that they are efficient. 

    Thou protesteth too much! You might then ask me how do they make profits. Recall that in an efficient market, the marginal firm will earn normal profits. 

    Wherever there are imperfections, firms will earn quasi-rent. There are elements of monopoly wherever you look around this economy and the firms are making profits because there is no competition. 

    I had similar tasks performed for me over my two- and-half decades of living in New York City and I never experienced this degree of rudeness, this depth of dishonesty and such horrendous inefficiency. 

    Anybody telling you that the private sector firms in Colombo are efficient is a snake oil salesman. Trust him as much.

    Dr. G.Usvattearatchi, Colombo 7.

    (The writer has worked as an economist in the Secretariat of the United Nations, New York 1971-75. He now lives in retirement in Colombo. He is the Vice-chairman of Marga Institute and in his spare time works in education, especially university education. He is a member of the Education Research and Study Group, Colombo.)

    Business Mailbag

    LECO - Powerless at times

    In this digital age, the Lanka Electricity Company (LECO) continues the obsolete practice of shutting down the supply from 9.00 am to 5.00 pm on one day in about two months ostensibly for the purpose of maintenance.

    I don't believe this takes place anywhere else in the world except perhaps in countries low in the scale of development. In fact, this kind of shutdown would be totally unacceptable in the developed world and heads would roll.

    Imagine the plight of offices, hospitals and clinics, banks, stores, gas stations, workshops etc, which rely on power for their daily operations; imagine the inconvenience and hardship caused to households. 

    What would happen if our hydropower and thermal power stations shut down power the way LECO does, or if the SLT shuts down the telephone service for a whole day for maintenance or the Water Board or TV/Radio Stations. 

    Seriously, does LECO expect consumers to invest in standby-power generators?

    LECO should become more consumer-sensitive if only by recognising that a utility, by definition, is a public service which must be available 24 hours of the day, come hell or high water! Let LECO investigate how other power suppliers in comparable countries with overhead distribution systems maintain uninterrupted power supplies. 

    There are books on the subject. 

    Let it obtain expert advice. Let it equip and train its staff to work safely on live lines and equipment. Let it indulge in some creative thinking. Continuing out-of-date practices is certainly NOT the way to solve the problem.

    This is not to deny some excellent work done by LECO in other respects, e.g. to improve reliability, prevent voltage drops, renew and extend power lines and modernize distribution systems. Paralysing business and households for maintenance, however, cannot appear in its Book of Excellence.

    Mansoor Ghouse, 

    Protect minority shareholders

    Reader L.S. Jayatunga, who has spent 25 years working in the EU and Commonwealth countries as an advisor in the securities field, said that when he left Sri Lanka in 1976 the Colombo Stock Exchange was a unknown bourse on the world market. It was a totally different picture on his recent return but he finds the area that has lagged behind in development is the position of the minority shareholder. Here, he argues the need for protection of minority shareholders

    Despite all the local hype about shareholder activism, Sri Lanka is yet to see any major initiatives being taken to protect the interests of the minority shareholder.

    When matters are taken up at Board level, very often only the interests of one or two large shareholders are taken cognisance of, and the minority holders, invariably larger in number, have to depend on the generosity of the few majority holders.

    However, things are beginning to change, as usual starting from the west. USA and Europe have been exposed to very high degrees of shareholder activism for nearly 30 years. 

    But even there the majority shareholders or the other big time investors and their fund managers exercise their power and influence to extract the highest possible short-term returns, very often totally ignoring the long- term interests of the business, the minority shareholders and employees.

    However, there have been many recent cases where the minority shareholders brought about positive changes albeit with the assistance of the courts. 

    Through such efforts they were able to even stall proposed mergers, remove directors, prevent write-offs of assets and on the whole, to prevent efforts to treat minority shareholders with disdain.

    In recent, much publicised German cases, a newly-formed association for small shareholders known as SDK was able to bring relief through courts to a large number of their members. Their main complaints were:

    * Disregarding minority concerns when mergers, acquisition or rights issues, etc. take place.

    * Being misled into paying high values for IPOs which crashed within a few months.

    * Not being paid a fair price when mandatory offers were made.

    * Directors appointed by shareholders not acting in the latter's interest.

    * Excessive fees and perks offered to non-executive directors

    Recently they succeeded in blocking certain proposed mergers between the partly state-owned German Regional Development banks known as Landesbanks and commercial banks, on the grounds that the minority shareholders were going to be shareholders of different companies. 

    In this manner they have been able to come together to win their demands against the few majority shareholders. 

    In Malaysia and South Africa they have even succeeded in instituting legal action against directors for criminal negligence for having misled them on the pricing of share swaps. In Sri Lanka it is rather unfortunate that despite provisions in company law to safeguard minority interests, there have been only a few cases which have resulted in the granting of concessions sought by the minority.

    In a declining market where the foreigners are no longer playing a major role, it is important to encourage more small timers (retail investors) to participate actively in the share market. It will, at least to some extent, correct the current decline. There is also a suspicion that this decline is due to the few majority holders, having recovered their initial investment through rights issues and dividends, are not showing much interest in ensuring optimum performance from their companies. In such a scenario a few active minority shareholders can prove invaluable guidance in revitalising the company.

    I have every confidence that by further strengthening minority shareholder rights through formation of associations as done in Germany, the creation of powerful lobbyists on behalf of minority shareholders as in the USA, a strong code of conduct as in London, supported by well drafted legislation it will make investing in shares a popular activity even among the category which now keeps away from the trading floor.

    Then we will see the creation of an active base of small-time investors to counter the big- timers in the stock market.

    L.S. Jayatunga 

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