Commercial Bank exploring overseas expansion
Posting good income from overseas operations including Bangladesh and Maldives, the Commercial Bank, is keen to replicate similar overseas operations in the medium term to spread the single-country concentration.
Commercial Bank Managing Director/CEO Sanath Manathunge told the Business Times that the bank is eyeing overseas expansion and further growth opportunities in Bangladesh and Maldives. He said banking as a service (BAS) could be an option for overseas expansion. “We can run smaller banks in other countries. Before the pandemic, we looked at certain countries to replicate similar models. We have also not ruled out the African continent,” he said.
He said that with the rupee appreciation, all banks have assets and liabilities in foreign currency and there could be a profit and loss (P&L) or a balance sheet impact by repricing these assets and liabilities. For example, if retained profits are held in dollars, and if the rupee appreciates or depreciates it will have an impact on the profit and loss account. “It is just a book entry. In the balance sheet, the loans and advances that are denominated in a foreign currency will decline when the rupee appreciates, as all figures are converted into rupees when preparing financials. With this, the total assets will decline and it will shrink the balance sheet up to some extent.”
However, the capital adequacy ratios of the banks will improve this scenario, because loan exposure is restated at a reduced level, in the capital calculation. “Depending on how exposed the banks are to foreign currency, the impact on their bottomlines could vary,” Mr. Manathunge said.
Noting the momentum the dollar has gained during the past week, he predicted the dollar demand will resurge after the demand for imports increases. “The Sri Lankan economy had Rs. 2 billion imports, but it went down to Rs. 1.4 billion in the last few months.” Noting that certain importers curtail their exposure to the volume of imports due to import restrictions, interest rate hikes etc, he said that if the Rs. 500 to 600 million import demand returns, the dollar will strengthen. He also noted that when the dollar depreciated recently, the rubber and tea auctions were dull. “They don’t have big margins and with the dollar going down, it directly impacts their profitability and competitiveness in international markets,” Mr. Manathunge said.
He said that with the International Monetary Fund (IMF) bailout package, other multilateral agencies will start funding the projects in Sri Lanka. After which the economy will gradually bounce back. Mr. Manathunge pointed out that in the long term, the dollar should stay at the level where exporters are benefited, as exports are the future of Sri Lanka. “The tourism and the export sectors, which are dependent on dollars, should be resilient to support the economic revival in the country.”
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