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Ranjit Fernando, Director/General Manager at the National Development Bank (NDB) ends his long sojourn in development banking later this month, seeing profits estimated to rise to Rs. 1 billion this year from Rs. 838 million in 2000.
Fernando quits after a 22-year long career at the NDB since its inception in 1979. The NDB CEO along with Maxi Prelis, retired Director/General Manager at the DFCC and now with the Nations Trust Bank, would be best remembered for charting a new course in the field of development banking from the 1980s to 2000.
Both men brought dynamism into the development-banking field when it was hitherto unknown in Sri Lanka, taking it to new highs as universal banking institutions.
Fernando recalls, in an interview with The Sunday Business, the beginnings of the NDB, its progress and his recent role as a key promoter of the SriLankaFirst business peace initiative.
Excerpts of the interview:
The National Development Bank (NDB) was set up in 1979 at a time when the DFCC was the only development banking institute.
DFCC was a small organisation at that time with its paid up capital being just Rs. 100 million. NDB began as there was a need for a larger development bank in Sri Lanka. It was started with a Rs. 600 million capital.
The World Bank was instrumental in setting up the NDB and I accepted an invitation to join the bank from the DFCC where I was number two at that time. I was heading NDB's small and medium industries division.
Another issue confronting the DFCC was that it could not fund government-owned projects so there was a need for a development bank to do this. The then Finance Minister, Ronnie de Mel, who proposed the setting of the NDB said government agencies should get funds from development banks and not come to the treasury.
Most of NDB's top management at the inception came from the Central Bank including its general manager, V.K. Wickremasinghe, G.M.P. de Silva and Justin Meegoda.
The first credit line was from the World Bank for small and medium industries and up to now we have had five credit lines, funding more than 50,000 projects in the country.
A World Bank survey of similar projects in 30 countries rated Ecuador and Sri Lanka as the best SMI (small and medium industry) schemes. It became popular and industrialists preferred SMI loans, moving away from security-type lending.
Post-war period
Development banks were started by the World Bank in the post-war period to help governments and industry to promote industrial development in war-devastated economies. Funding came from credit lines and government support was provided by way of guarantees on loans obtained and taking of foreign exchange risks.
NDB was a fully government-owned bank till 1993 when privatisation was considered. Over the years, since its inception, the NDB was a regular bank but with small growth as there was little drive and enthusiasm from the bank's leadership, who were all central bankers.
We made an average Rs. 100 million in the first few years. I took over as general manager in 1989 and brought in a more private-oriented management style, which saw lending portfolios and profits rising sharply.
Many things were changed including the way we handled loans and other procedures making it a more market-driven institution.
In 1993 NDB was privatised with 61 percent of the stock being sold in the stockmarket at Rs. 50 per share and, within a year the shares rose to Rs. 490.
ADB, Citibank, the Commonwealth Development Corporation of Britain and Nomura Securities of Japan took up a five percent stake each in NDB on the basis that they would be involved in joint ventures with the Sri Lankan bank. CDC invested in the Ayojana Venture Capital, Citibank in Citi National and ADB provided lines of credit and invested in the NDB housing bank.
NDB is now involved in a range of activities including stockbroking, insurance, environmental management, housing finance, leasing and commercial banking with NDB Bank (via ABN AMRO).
In 1994 or 1995, NDB was the highest profit-making company on the Colombo stock exchange, making nearly a billion rupees in profits that year.
Increment patterns were changed with two segments included – the cost of living increase and one based on performance.
Staff was given certain targets on which ratings were made. At the end of the year we selected 15 percent of the best performers, another 30 percent as good, another 30 percent as average and 15 percent as below average.
The best 15 percent performers get three years of increments (36 months) as a lump sum, the 30 percent good performers get 24 months in increments, average performers get only the cost of living increment while below average performers received a reduced cost of living entitlement.
Through this scheme, staffers were motivated and had targets to meet. They went out to customers instead of waiting for the customer to come to the bank. NDB became the largest term lender in the country, overtaking DFCC by a wide margin.
® Privatisation of the DFCC came subsequently?
DFCC was always a private-owned entity and a quoted company at the Colombo stock exchange but it had government support like guarantees on all foreign loans taken.
In 1995, NDB was further privatised with government holdings reduced to just seven percent.
With the commercial bank being formed, I felt it was time to move on as we need to give younger people a chance to run these outfits.
We are trying to amalgamate the two – NDB and NDB Bank – so that the commercial deposits could be used for long-term lending purposes. The 11 branches of the NDB will also be converted into commercial banks to raise deposits.
® Will NDB survive as a development bank in the future?
We are still bound by the NDB Act. Our purposes and objectives haven't changed like developing industries and lending to agriculture.
We have now become a universal bank offering a range of services to our clients.
An international consultancy group called Monitor from Canada is in the process of preparing a strategic plan for the NDB, which we hope to implement by next March.
The group is doing a comprehensive study on how to integrate all NDB activities into one so that a client walking into a bank branch can invest, borrow, get leasing, insurance and a housing loan. The study is partly funded by the International Finance Corporation (IFC), a World Bank affiliate.
® What changes have you seen in the area of development banking over the years?
All the development banks in the world have been transformed. In India for instance, both the development banks have gone into commercial banking in addition to their development banking portfolios.
The character of development banking has changed. No longer are government money and subsidies available.
® Is it because the private sector is playing a much bigger role in economies across the world?
Partly that and since the private sector needs dynamic banks and not government-owned banks to fulfil its needs. Political thinking in the world also changed in which governments were giving up running businesses and handing them over to the private sector.
® But will the rural economy suffer if development banks become profit-motivated commercial banks?
The other side of the coin is that those days, these sectors had to be subsidised. But the thinking now is that if you continue to subsidise, these industries would never become viable. State corporations for instance cost the budget dearly. Look at the plantations after private sector ownership and management. There are no government funds required and tax revenue from these firms is increasing state coffers.
But the NDB still funds projects like in the agriculture sector even though there are losses in the short term since we know that over time they would be viable. A development project should be profitable otherwise you can't sustain it.
® Your views on other sectors of the economy, politics?
There should be private sector involvement in education even at university level.
State monies allocated to universities could be given to students who are eligible for university education to select the state or private university of their choice and get an education that is market oriented.
Today staff at state universities, whether they perform or not, spent little time lecturing but still get good salaries.
Academic staff also resist change. They don't want to be at the beck and call of students and change according to market pressures.
On the political situation, the proper management of the country boils down to good leadership – showing a good vision, sharing that vision and getting commitments from staff or the people.
The political system has to change. How many people vote on issues rather than being bribed through handouts, sops, etc.?
® A man with your experience is a good candidate for a senior public sector position. Any offers?
I was invited to take over the Ceylon Electricity Board or the Ceylon Petroleum Corporation but in view of the pending elections I was not interested.
I have offers from the new government but I would be interested only if I am able to do a proper job of work and not be treated as a political stooge.
There is also a short-term consultancy offer with the World Bank in Washington in development financing which I think I might take.
® On peace …
I think the process of devolving power to the regions is not the correct approach. By doing this, we are contributing to the division of the country.
Tamils should feel they are part of the whole country, not only a region. We should share power at the centre rather than the periphery. The government could have two vice presidents from the Tamil and Muslim communities and give those communities powers from the centre.
People should be recognised through their work or performance, not on ethnic lines.
The country spends six percent of GDP on the war when this money could be much better used to develop the country's infrastructure.
