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HSBC’s global strategic shift frees up turf for domestic banking sector
View(s):By Kapila Bandara
Hongkong & Shanghai Banking Corp (HSBC) this week announced it will divest its Sri Lanka’s retail banking business to Nations Trust Bank (NTB), a move the bank states is in line with the strategic shift of its global operations underway over many months.
Global banks have been adapting to a shifting macroeconomic environment, rethinking their portfolios, business combinations, and divesting businesses that are not strategically compelling.
The HSBC announcement, during a week of further stock market highs and another sovereign upgrade, caused unease among some HSBC account holders and credit card users (NTB offers an American Express card), while others reacted, portraying an unfavourable country with international banks pulling out of it.
Financial quarters viewed the transaction as positive for the banking sector where profits are piling up, bank capital improved, credit demand accelerated, and default risk fallen in a low interest rate environment. There was a flurry of investment banking activity for weeks. In the past 12 months the Colombo Stock Exchange has created Rs 2.8 trillion value, although it is estimated that this wealth is in the hands of about 100,000 people.
The deal strengthens 25-year-old NTB’s hand in the lucrative credit card business. Credit card volumes have grown, along with net fee and commission income. Credit card advances exceed Rs 24.4b, filings show.
In consumer banking, NTB is casting a wide net for the wealthy and mass affluent customers.
NTB’s shareholder funds have risen to Rs 79.5b in 2024 and assets have swelled to Rs 546b with the loan book growing as well as financial assets. It has deposits and borrowings of Rs 447b.
Shareholder funds of Rs 79.5b and stated capital of Rs 12.1b allow NTB to chase strategic objectives.
Aiming to achieve scale (as in this deal) and consistent returns is a part of NTB’s four strategic pillars. Improving operational efficiencies and shaving costs, being another.
Standard Chartered Sri Lanka, has also said it is exploring the sale of its wealth and retail banking business.
The bank globally has been intending to sell all or part of a small number of businesses. In the third quarter of 2024, Standard Chartered sold its personal loan book in India.
In its Sri Lanka customer and product portfolio, the bank’s exposure to infrastructure and construction is 25%, and 20% for manufacturing, 2024 filings show.
For more than a century, HSBC and Standard Chartered have played an important role in Sri Lanka’s economy funding imports and exports, financing, payments, overdrafts, corporate loans, and for years, both have been important underwriters in Sri Lanka’s international sovereign bond issuances. Standard Chartered was instrumental in the Sri Lankan Airlines US$175m bond, which the carrier defaulted on.
When HSBC confirmed the divestment, Sri Lanka had just received a sovereign ratings upgrade from S&P, following positive revisions from Fitch and Moody’s late last year. The economy grew by 4.8% in the first half. Forex remittances of Sri Lankans are breaking records as are government tax revenues.
Awakened by the HSBC news, which left room for speculation, there were those who took to social media about a perceived industry hollowing out and economic damage from foreign banks leaving.
Leader of the House Bimal Rathnayaka, who is also Minister of Transport, Highways, Ports and Civil Aviation, referred to negative reports of the bank transaction in Parliament, noting that it, “does not have to be because of any issue is Sri Lanka’s economy’’.
NTB is a constituent in the S&P Sri Lanka 20. The bank is held by diversified conglomerate John Keells Holdings, which is also in the benchmark that tracks 20 leading companies.
NTB noted gaining some 200,000 customers in its 24 September notice about shaking hands on a deal to buy HSBC’s Sri Lanka’s retail operation. NTB called it “a landmark moment’’. The bank already has 600,000 plus customers.
It was a period when the Colombo bourse had rallied for nine straight sessions, bouncing to a new high Friday of 21,599 points. Banks accounted for Rs 7b plus turnover and diversified financials Rs 4.9b.
In the week, NTB trading turnover exceeded Rs 1.3b, and JKH surpassed Rs 1.4b, data show. NTB shares reached a high of Rs 324 and ended the week at Rs 307.50 higher than the previous week close.
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