Lanka
better off with few larger banks than many - NDB Bank CEO
NDB Bank is preparing for the merger with its parent National Development
Bank, while gearing for competition in the industry when the two
financial institutions team up. NDB Bank CEO, Eran Wickremeratne
spoke about the merger and the future of the bank to The Sunday
Times FT staff correspondent Duruthu Edirimuni and special columnist
Ravi Mahendra.
What is the long-term strategy of NDB bank with regard to
Sri Lanka? Will it consider more branch expansions and in which
regions do you see opportunities?
When
the long term strategy of the bank was laid a few years ago, NDB
was a one product bank, which was essentially for project finance,
largely funded through multi lateral assistance. It did not have
a future when this assistance began to decline. Then we had to change
our strategy and promote value added services to customers. That
is when we decided to be more focused on universal banking. The
regulatory environment at the time was such that NDB needed separate
entities to do this, but now the regulators understand that the
banking licenses have to be broad based and there is a convergence
in businesses. Now we are evolving into a financial services company,
rather than a project financing bank. We certainly have to build
our distribution and we have a branch expansion programme in place.
By the end of the year, we will have 26 branches.
What
do you think is the key competitive advantage that NDB Bank possesses
when compared to the other large banks operating in Sri Lanka?
Today, to be a financial services powerhouse, you need to have a
strong balance sheet and capital. Size, market share and asset size
are not regarded as strengths anymore. It is the quality of the
balance sheet, earnings, capital and reserves that matter and this
is what NDB Bank has. We have gone through a process of consolidation
and National Development Bank has the capital. When we compare ourselves
with the others in this respect, we are in a very advantageous position.
NDB Bank was promoted by the National Development Bank as a way
of widening its product offering. Right from the start there was
an intention to bring these institutions together when the market
and the regulatory environment were ready. So, the strength of the
balance sheet is one of our main advantages.
Who
is your main competitor among the local banks and how do you see
your performance against your competitors?
We are in corporate banking, consumer banking, project and group
financing. Considering the commercial banking sector, the corporate
banking competition is very tough. In project financing we have
competition, because there are a lot of commercial banks that have
come into it recently, but we have the advantage of an unparalleled
skill base. In consumer banking the foreign banks are also bringing
in competition with their international brands and the local banks
are competitive. Looking into the future, we see globalisation,
relaxation of barriers and licenses, which means that our competition
is going to be global banks and strong powerful regional banks.
Central
Bank has raised the capital requirement for banks. How do you think
this will affect small banks and NDB Bank in the future?
This was long overdue. Globally, the financial services industry
is consolidating. Specifically in Asia, countries like Singapore
has four banks, Malaysia has six and in Indonesia from about four
hundred they have cut to nearly half that number. Therefore, we
see that the global industry has focused on consolidation. In Sri
Lanka it has been overdue and the Central Bank's recent announcement
was in the right direction, so that we have a stronger banking industry
with many banks consolidating. I don’t see it as smaller banks
having a problem, but banks combining their capital bases and rationalising
their investments and providing a stronger financial base to their
customers with better products and services. This process does not
happen only by higher capital requirements, but you also need to
create a regulatory environment that will quicken the process of
consolidation. I think Sri Lanka is better off with a few larger
banks than many banks, because the consumer is becoming more sophisticated.
Has
NDB Bank completed its merger and why is such a merger being carried
out?
The merger has taken a long time because of the special circumstances
of the National Development Bank, which was under its own Act and
therefore it had to go to the parliament – a process that
took twice as long, because the parliament that was considering
it was dissolved and the process had to restart. The good news is
that we are well on track for the merger. Within a few weeks we
will be one large bank. All the regulatory approvals have been obtained
and now only the shareholders of the two banks have to give their
approval.
Foreign
banks, mainly HSBC are growing their operations in Sri Lanka particularly
among the urban segments. Would this be a threat and what strategies
are you taking to overcome them?
We don’t see it as a threat. We need to accept the growth
of the foreign banks as a facet in a free market economy. There
are a lot of opportunities and it is really all about positioning
yourself and deciding what segments of the market you are going
after.
Why
has your turnover as well as the bottom-line declined in 2004 when
compared to 2003?
Looking at the banking industry, there was a general decline that
year. Fundamentally the business has performed well when reducing
the windfall gains in 2003 relating to fixed income trading, which
didn’t happen last year. When comparing our financials with
the rest of the players, the government retrospectively taxed the
incomes from the trading portfolios of 2003, which we accounted
for in 2004, but some other banks have not done that.
Compared
to other subsidiaries NDB Bank appears to be much closer to NDB
with a common set of values. Why is this so?
We had a strategic plan and a direction in terms of putting the
businesses together, because they were complimentary. We have set
a common mission and values, so that when we legally merge, the
more important and intricate issues like the organisation and culture
are all much more integrated.
You
have been involved with Fisherman’s Relief Trust as well as
the Trust for Prevention of Child Abuse. Are you satisfied with
your progress?
Child Abuse Trust is a focus we inherited from the business. We
have achieved success in some small way by helping and we will continue
to do so. Since large proportions of people affected by the tsunami
were fishermen, we thought of helping them with the means to restart
their vocation and assisted with the Fisherman’s Relief Trust.
We have done a lot, but we wish that we could have made a lot more
progress.
Can
you tell us the systems of corporate governance which are in place
in the bank?
We are very conscious of corporate governance. Internally we have
compliance officers and we have staff policies with regards to corporate
governance. Fitch has awarded you a financial rating of AA minus.
Are you satisfied with this and will there be an improvement in
the future?
It is one of the highest in the industry and there are only two
other commercial banks who have received this rating. The AA minus
was because we had capital deficiency, but the merger will put us
up at a higher rating.
Your
percentage of non-performing loans as a part of the overall loan
portfolio is quite low. How has this been achieved?
The risk management process is very stringent. We have a risk return
culture as opposed to a size driven culture. There is a lot of focus
on this, both at NDB and NDB Bank.
You
are achieving capital adequacy by combining with NDB. On your own
are capital adequacy requirements being met?
No, on tier two we meet these requirements, but not on tier one.
We have always maintained our capital adequacy ratio, but in October
2003, pending the merger, we asked the Central Bank for permission
to grow the business without the capital adequacy restrictions,
promising them of a commitment from the National Development Bank
for capital.
Do
you think the bank will be able to perform better than last year
by end of 2005 and do you have an EPS target in mind?
Yes. We are focussing on giving shareholder returns. With the merger,
there are a lot of opportunities, because then we have the capital,
the product, the price and the customers. We will invest in that
future.
You
have been leading the bank from the inception. What is the most
challenging situation that you have faced?
Probably it is merging the two institutions. In many senses, it
is a unique experience. It is defining the common business rationale
of the two banks and about bringing people to believe in that vision.
Providing leadership and building successful teams would
have been an ingredient of your success. Could you share your approach
with us?
The key to success is people. For a CEO of a company, the primary
focus should be on the strategy and then putting the correct teams
together.
The
Sri Lankan economy is facing high levels of political instability.
In this environment do you think that it will be possible for financial
institutions in general and NDB Bank in particular to achieve its
growth targets?
Yes and no. It is unfortunate that we are grappling with basic issues.
We cannot grow rapidly in a politically unstable environment. We
can never have eight to ten percent growth rates that will help
the industry to grow, without political stability. We will not be
able to meet ambitious growth targets, unless we have political
stability and consistent economic policy.
Are
you able to easily obtain the right quality workforce from the economy
and how is your labour turnover?
Increasingly we are attracting both from the school leavers and
also from the industry and we are happy with them. Our labour turnover
has been very low.
A
bank’s success in the future will depend on IT systems rather
than branch networks. Do you think this situation will eventually
come to Sri Lanka and how is your position in this area?
Already we focus a lot on being technologically driven. We use technology
to drive delivery and processing and we have centralised processes.
Definitely this situation will be true in the country in a couple
of years.
What
do you think needs to be done to get things right in Sri Lanka?
Do you think that this country can join the league of developed
nations eventually?
The primary factor is the political stability. We need to reconcile
the fundamental ideas and reach a consensus. We need political stability
and need to resolve the big issues. |
