Failed initiatives in synergies among state banks

Sri Lanka's state banks have agreed on implementing a meagre eight proposals out of a possible 84 after earlier resolving to adopt initiatives in order to emerge as a major competitive force in the banking sector.

The four state banks involved in the three month long discussions were Bank of Ceylon (BOC), People's Bank (PB), National Savings Bank (NSB) and State Mortgage and Investment Bank (SMIB) in conjunction with the Strategic Enterprise Management Agency (SEMA). The discussions primarily focused on cost reduction proposals through shared services and synergy initiatives.

Officials said out of the eight proposals which were agreed upon, the most significant is the linking of the ATM networks and the sharing of the IT infrastructure which are key areas for cost reduction. The software and technical costs for the ATM linkage between the banks will be in the area of Rs.15 – 20 million and should be implemented within the first quarter of 2007. Banks have been trying to issue all their cards using VISA but a fee of Rs.50 be imposed each time the card is used. However, if the ATM machines are linked to the proprietary network, using VISA will no longer be necessary. This will result in reduced transaction costs to customers who are already dealing with skyrocketing interest rates. Furthermore, the government has made a commitment to launch government service salary cards so it is essential for the ATM machines to be linked.

A senior official from the BOC told the Sunday Times FT that discussions are ongoing. "Some of the issues which are being discussed are fairly complex and involves the concurrence of opinion between banks and SEMA." According to the official, the project is still alive. "The 84 proposals were the result of a brainstorming session so they were not fully formed but rather exploratory. Once we met for discussions on the possibility of implementation, there were some operational issues that came up." The official further stated that some proposals have been differed and some outright rejected.

The state banks have rejected initiatives for communication links of their branches across the country, a common call centre and a shared card issuing centre which would have dramatically reduced their costs. State bank networks can be found all across the country with each of their branches linked to their head office through expensive communication and data links. Suggestions had been made to consolidate the data links and negotiate with their telecom service providers as a single customer. Banks also rejected initiatives for a unified call centre as well as initiatives to print all their cards at one common facility and have a common card issuing centre.

Furthermore, state banks have legacy inherited assets which have no relevance to banking functions. For example, the BOC owns the Grand Oriental Hotel in Fort, printing presses, percentages of hospitals and other assets around the country. "These investments should be managed by a separate entity because bank management must focus on core banking functions. The BOC Chairman is the chairman of every single subsidiary under him," the source said. "These assets have to be sold off or divested. These banks have to compete amongst themselves on the revenue side but they must save on the cost side." (NG)