Business Times

HSBC to start new branch in Galle; set to capitalise on peace

By Duruthu Edirimuni Chandrasekera

HSBC, on a strong growth mode this year, is set to capitalise on the peace dividend, while gearing to start a branch in Galle, officials said. "We are opening a new branch in July in Galle which will be our 17th branch,” Nick Nicolaou, CEO HSBC told the Business Times. The Business Times in a February 2010 report spoke of HSBC's interest in starting up a branch in the south.

Nick Nicolaou

Mr. Nicolaou stressed that with the dawn of peace, HSBC has been in a growth mode. "We’re the leader in infrastructure project financing across all sectors such as wind power, thermal power, road infrastructure, telecom infrastructure upgrades, etc. We’re financing new hotel projects which are foreign / local collaborations, existing hotel refurbishments, etc," he said.

"There’re some smaller new city hotels which we're also financing," he added. He said that HSBC plays its part in providing working capital requirements of firms - especially in the export sector, such as tea, rubber and garments, and is the main player in the interbank forex market after the state banks.

Mr. Nicolaou said that apart from many road, power and wind power project finances, HSBC is also financing telco infrastructure projects. "Etisalat is upgrading its infrastructure and we're involved in that, as we have been with Mobitel in the past. We see that there is a growth in reported profits (especially last year) in nearly all firms and with that we're also seeing an increase in our business and profit growth," he added.

He said that HSBC, which is the leader in credit cards has 27% of the market share while 47% of the credit card spend belongs to them. "We see the competition in this market, but our share is holding up."
Drawing attention to the shrinking credit card market, Mr. Nicolaou said that the biggest issue in credit cards is the regulated interest rates. “But we're adapting to these conditions and forging ahead, determined to defend our market share,” he added.

Discussing the banking sector in the country, he pointed out that a major public criticism is that interest margins in banks are high. "The main reason for this is that the intermediation cost is high and as many of the banks are of a suboptimal size, they’re not of a sufficient scale to allow economies of scale. I firmly believe that consolidation is the answer to this issue.”

Pointing out that presently, under Section 12 of the Banking Act an individual, partnership or corporate body shall not either directly or indirectly or through a nominee or acting in concert with any other individual, partnership or corporate body acquire a material interest in a licensed commercial bank without the prior written approval of the Monetary Board where the threshold limit in the Act is 10 percent, Mr. Nicolaou said that this 10% rule will not attract foreigners to this sector as they will want a larger stake.

"This will not augur well for consolidation," he explained, adding that with consolidation there’ll be stronger banks with a bigger capital buffer to withstand any future financial crises. He said that if the government's aim is to double the income per capita in the country, it also needs to double the credit growth, which can only be achieved by robust banks.

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