Financial Times

Personal banking - balance of service, pricing and channels - HSBC Deputy CEO

By Akhry Ameer
The local banking industry has become extremely competitive and banks can only sustain their performance by striking an optimal balance between service, pricing and channels.

In this scenario no bank can have 'phenomenal' profits and sustain their business in personal banking, says Sarath Piyaratne, HSBC's Deputy Chief Executive Officer - Sri Lanka.

Dispelling the notion that banks are making phenomenal profits and customers are getting ripped off, he said, "Banks make profit and sustain this, only if they have customers. If a bank is unable to provide good customer service and if you 'rip the customer off', you will not be able to retain existing customers for long or acquire new customers.

The banking industry has become extremely competitive. So you can make 'phenomenal' profits and sustain it only if your customers are satisfied with the service and pricing."

HSBC has identified eight core competencies for excellence in personal consumer banking in order to differentiate its service.

These include the ability to deliver outstanding customer service consistently, investing on innovative and creative marketing and promotions, teamwork, training, rewarding performance and striving to continuously improve in productivity ratios. HSBC has also made all its employees a salesperson by inculcating a sales-and-service culture and creating a reward scheme.

Further, banks should aim to cross sell as many products as possible and meet all financial service needs of customers to build loyalty, which in turn helps in reducing the cost base.

A bank would have to identify the critical criterion that needs to be delivered in order to influence the buying decision for every product.

For example, outstanding customer service can neutralize several other criteria a bank is unable to meet.

Similarly high interest rates on deposits and low interest on loans may mitigate average or even poor customer service.

While delivering service banks also have to match modern technologies and innovative conveniences. These, Piyaratne told The Sunday Times FT in an interview, is actually a benefit both to bank and customer as it enables them to reduce costs of maintaining expensive branches and though some may have a price tag they are relatively cheap. "The novel electronic and new age services are in fact cheaper and more convenient than using traditional banking service delivery channels.

Also, most of these services are offered free or with low pricing," he said.

Speaking on the gap between borrowing and lending rates that has been constantly under debate, he was of the view that banking is a business and interests of the shareholders and investors need to be maintained.

The gap is also determined by the risk associated with the lending, while market forces also come into play.

The gap can be very small as in the case of lending secured by deposits, or it can be higher in the case of unsecured lending.

He also explained that banks generally have a very high cost base such as infrastructure cost, personnel cost or operating expenses and the margins a bank makes must cover the overheads and take into account any bad debts before a profit is made. "The cost income ratio of the banking industry in Sri Lanka is high with most banks being around 50-65%.

On top of that, non-performing loans ratio is also high.

There are many reasons for this but whatever the underlying reasons are, these two ratios need to reduce before we can expect to see lower interest margins between deposits and lending rates," he explained.

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