While most commercial bank chiefs are seen publicly supporting the financial consolidation reforms (privately they may say otherwise), one banker stood tall this week expressing a different, divergent and somewhat courageous view to the extent of saying “don’t do it (in the case of banks).” This came at the MTI Consulting-organised “MTI Banking Forum – [...]

The Sundaytimes Sri Lanka

Financial sector reforms: Some cracks appearing in banking industry

HNB’s Alles says banks should not absorb finance Cos.

While most commercial bank chiefs are seen publicly supporting the financial consolidation reforms (privately they may say otherwise), one banker stood tall this week expressing a different, divergent and somewhat courageous view to the extent of saying “don’t do it (in the case of banks).”

This came at the MTI Consulting-organised “MTI Banking Forum – Financial Sector Consolidation to ensure effective integration and synergies” held in Colombo this week with eight financial sector leaders in the panel to discuss the issues.The panellists were Anil Amarasuriya, Director/CEO, Union Bank of Colombo; Aravinda Perera, MD, Sampath Bank; Jonathan Alles, MD/CEO, Hatton National Bank; Arjun Fernando, CEO, DFCC; C.J.P. Siriwardena, Asst Governor, Central Bank; Krishan Balendra, Chairman, Colombo Stock Exchange; Preethi Jayawardena, Chairman, The Finance Co and Rajendra Theagarajah, CEO-NDB.

While seven of the panellists were generally in agreement with the government move to consolidate the financial sector by mergers and integration, Mr. Alles fielded a completely different view.

Mr. Alles said, “I just say at the end of the day this would mess this up … right royal. What we need to do is probably keep the holding structure, keep our banks. Do not try to bring in finance companies into banks with some trying to take some part of businesses into the finance companies. And there is lot of inefficiencies in the way we do some of our stuff”.

He said that he would be holding a slightly different perspective as he did not see the exercise as an opportunity and stressed: “Don’t do it”. He said that the best could not be achieved by bringing the finance company into the bank by taking some of the inefficient processes, inefficient products, inefficient structures etc.

He asserted, “The ideal structure, I am still looking at one-plus-one and where does all that comes from, in the branding, better risk ratings, better pricing, etc. But if you try to bring in structures, merge structures, merge people, bringing systems together you are not going to get anywhere”.

His advice was rather to focus on driving finance companies properly and said that is “my personal perspective and that is my recommendation to my colleagues do not touch it”.

“Create stronger finance companies,” he urged. He said that would bring down the cost of funding and that benefit can be passed onto the customers.

He said that the bankers sometimes do not know how to do things in the finance companies and quipped; “Finance companies have better models in service. They have far better models in recovery. I would rather outsource some of my bank recoveries to these finance companies”.

Mr. Alles said that he is not saying that the bank structure is better. “I don’t say the finance companies’ structures are right because as much as they are efficient, they also need to change, the technology part to come in there … mobile banking, etc. They have the ideas themselves. But what they are lacking is balance sheet strength,” he said.

He said that the change could be brought in operating it more efficiently by bringing in more technology. He said that the model will change, the structure will change, the people will change not because of this consolidation or merger but because in itself the bank needs to change from the way they are actually operating now and the finance companies need to change as they need to address the growing market.

Hilmy Cader, CEO, MTI Consulting, in presenting the panel discussion, said that the purpose of the forum is to look forward to working on the assumptions on how they could get the best out of the integration within different levels and different time frames.

He said that they are presenting this panel discussion to support the move by the government to consolidate the financial sector by effective integration of banking and financial institutions of the country, change the financial and banking structure of the country.
Except for Mr. Alles, all the other panellists supported the government move and elicited their inputs and forwarded their strategies as to how best the move could be achieved.

Nivard Cabraal, Governor, Central Bank who made the keynote address, as usual with his statistical jargon created a rosy picture to indicate the country’s economic and financial activities are stable and in full swing to achieve the desired results by the government.
Referring to the government move on financial consolidation and integration, Mr. Cabraal said “the Generals have to be axed to retain the soldiers”, a possible reference to getting rid of higher-ups like CEOs, to push the juniors up in this process of mergers and integration of financial institutions.

Local banks need to be bigger to compete with regional and global players for SL projects

Supporting the Central Bank (CB)’s and Government vision on the financial sector consolidation reforms, a commercial banker said Sri Lanka needs bigger and larger banks that could stand up to regional and global entities.

File pic of the new Cargills Bank

“Look outside and see the extensive growth in infrastructure and other development? Only a few (local) banks have supported this growth (financially) which has been taken care of by larger players. Rather than allowing regional and global players, our banks should step in and be part of that growth,” Rajendra Theagarajah, CEO-NDB told a Colombo Club luncheon meeting at the Taj Samudra on Tuesday. He was referring to the infrastructure development in Colombo including new buildings, roads, parks, creation of green space.
Discussing the new roadmap for downsising the financial sector to 20 institutions (banks and finance companies) from over 55, he said there is an upside in consolidation.

Most of the company (bank) balance sheets have more investments in government securities, fixed income, etc rather than in the core business of lending. “Are banks delivering value to their shareholders?” he asked, while noting that the two state-Bank of Ceylon and People’s Bank account for 45 per cent of the market share. His presentation implied that rather than have a ‘tunnel vision’, the banking sector should think big and consolidation would help institutions to have a 10-15 per cent of the market share rather than 3-4 per cent.

“We need to be bigger and when that happens, it would attract foreign capital (which is not interested in small players),” he said, urging shareholders and boards to see beyond and a broader picture. He said there was a need to move away from conventional thinking and looking “out of the box”. While saying he was expressing views as a banking professional and not as a NDB employee, Mr. Theagarajah however addressed the ‘name changing’ issues at the NDB which is to be merged with the DFCC as one development-commercial banking entity.
“In the name-change, we should not be driven by legacy, rather by markets and the future,” he said implying that his own view was that a new name should emerge and not on the lines of earlier mergers like ANZ-Grindlays, etc.

As a supporter of the reforms, he said banks should interpret the rules not as ‘regulation-driven (forced on by the CB)’ but as ‘regulation-enabled (CB facilitating a process)’.

Referring to concerns about job losses, etc, his view was that pragmatism and a growing economy (which is increasingly providing more opportunities for jobs) should be the way to handle these issues.

In a merged unit, he said he believed there should be only one CEO and one board of directors and personal agendas set aside in the larger interests of a better future for the institution,

In the valuation (buying price) process, fair valuation should be the key; the process should be transparent to all stakeholders and one needs to select a leadership team based on the best person for the job, he said.

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