Future-proof banking requires accelerated technological transformation: Jonathan Alles

The emergence of the COVID-19 pandemic and its resultant limitations on economic activity, has caused digital banking to become an integral part of daily life. The impact of these changes are likely to be felt for decades to come as organisations and their customers pivot towards technological solutions to optimise existing business, and unlock new capabilities, as part of a broader pursuit for competitive advantages amidst tight market conditions.

Elaborating on his organisation’s own unique experience with these dynamics, HNB Managing Director/CEO Jonathan Alles provided some compelling insights into what is around the corner for the bank and the wider Sri Lankan economy in the months ahead. Following are excerpts:

Q: How has COVID-19 impacted HNB’s transformation road map and the level of future readiness? 

 The COVID-19 pandemic has been one of the most disruptive events in global and local history. However, even with economic activities coming to a near standstill for almost two months, the banking sector continued to operate throughout, providing much needed support to customers.

Within the lockdown mechanism, we experienced an encouraging shift in customer behaviour as retail and corporate clients alike adapted to digital banking solutions, compared to the worldwide slow conversion rates under normal circumstances. Early adoption of digitalisation by HNB, proved to pay dividends as we were able to support these transactions through our spectrum of digital banking products and services ranging from internet banking, mobile ATMs, mobile POS, payment app, and IPG services.

In May – two months into the pandemic – the bank launched Appigo to support merchants in rapidly establishing their own e-commerce sites from scratch. In addition, many new features were added to the SOLO payment app including support for direct payments and on-line account opening. In the coming months, users and vendors alike can expect the addition of several more powerful new features to SOLO.

Despite the challenges brought about by COVID, the bank also pursued critical technology enhancement projects under the transformation roadmap. A good example was the core banking solution which was successfully upgraded in early August, as originally scheduled. The version upgrade to Finacle 10.2.25 is the most up-to-date system available in Sri Lanka at present and will provide greater impetus on our efforts to introduce innovative products and services.

We also made great strides in the implementation of a digital layer which will enable the bank to collaborate with fintechs and provide more innovative solutions to the customers. A new business intelligence tool was also launched in end July which has further enhanced efficiency in generating management information for decision making. Therefore, we are quite pleased with the progress made under restrained conditions.

Q: What are some of the main risks and challenges which HNB anticipates moving forward and how are you responding?

 The primary concern for the banking industry and for HNB as well at this point in time, is maintaining asset quality in a very volatile and constrained environment. Our key focus at present is to ensure that our customers are provided with the required financial assistance to ride through the challenges posed by COVID. This would enable the customers as well as respective industries to be in a position to contribute effectively to the national economy once again. Accordingly, we have provided capital and interest moratoriums to over 80,000 customers and approved working capital financing of over Rs. 22 b.

At the same time, we continue to review and refine critical processes and underwriting standards.

In 2019, HNB re-engineered its branch operating model under the transformation journey with the formation of separate verticals for sales and service, credit, operations and recoveries; all of which were previously under the purview of the branch manager.

With the rollout of this branch operating model, the credit underwriting function was segregated from credit sales, and brought under the oversight of the newly created role of the Chief Credit Officer (CCO). Credit approval structures have also been refined and brought under the CCO vertical that has been assigned clear KPIs to manage NPAs. In addition, credit operations, administration and security documentation processes for the entire network have also been centralised thereby improving the efficiency and quality of the credit process.

Given the importance of managing asset quality, we have also improved the monitoring mechanism with special asset management committees set up.

While maintaining liquidity was a key concern initially with moratoriums offered up to six months, the banking sector has been successful in overcoming the situation. HNB recorded a Rs. 55 b growth in deposits with CASA base improving by Rs. 34 b during the first half of 2020, clearly demonstrating the trust and confidence placed in us by our valued customers. As a result, we have been able to record liquidity levels well above the regulatory requirements.

Another core challenge is to mitigate the issue of shrinking margins as well as lower fee income driven by factors such as restrictions on imports and low credit card volumes due to non-arrival of tourists.

Given that some of these sources are contingent upon global recovery, our focus is on managing factors which are within our control. As such, we will continue our efforts on cost optimisation, operational efficiency and digitalisation to offer a superior experience to all our customers.

Q: In the event that Sri Lanka maintains its progress in combatting the COVID-19 pandemic, what do you expect the new normal to look like?

While we have witnessed unprecedented volatility, we believe that these conditions will ultimately serve as the greatest catalyst for technological transformation. Hence, over the short-medium term the ‘new normal’ will mainly be characterised by the establishment of digital alternatives to traditional processes at every level. For HNB, this means a continued emphasis on digital banking channels and products to ensure maximum convenience and safety for our clients.

 During the height of the pandemic, our dedicated staff demonstrated utmost commitment by reporting to office and working tirelessly day and night to provide moratoriums as well as working capital finance to the affected customers. They have showcased their ability as a strong team to function under the most turbulent conditions and it is our duty to take good care of our own staff. In order to ensure that they are future ready, the staff must be taken through the digitalisation journey and provided with the required learning opportunities for career development.

While the banking sector was quick to adopt a hybrid model of reporting to office and working from home, under the new normal we would see many industries resorting to flexible working arrangements even in a post COVID environment. Apart from business continuity this would also enable releasing cost efficiencies.

Given the massive disruptions caused by the pandemic, the other key factor which will drive success in the ‘new normal’ would simply be innovation. The pandemic has exposed existing gaps in business, operating and economic models across the globe, but these gaps also represent tremendous opportunities for those who are able to identify, innovate and create solutions at scale.

Q: What is your outlook for the future and how ready is HNB?

 Our outlook is heavily dependent on how the remainder of the year plays out. The Asian Development Bank (ADB) has revised its expectation for the year 2020 marginally upwards, to a contraction of 5.5% YoY. While these are challenging times, we should also keep in mind that Sri Lanka has been through much more difficult times in the past, and has emerged stronger and resilient. One of the most positive indications in this direction at present is the success which the nation has achieved in containing the spread of the pandemic within its borders – a feat which has unfortunately not been managed in many other nations.

The new Government has come in to power with a resounding victory and has the mandate to develop the country. We believe that this represents a critical opportunity to truly unleash Sri Lanka’s growth potential, and hence must not be wasted.

In this backdrop, it is remarkable to note that by the beginning of 2020, HNB was already revamping its organisational structure to support our on-going transformation program with the express goal of enabling greater agility.

Accordingly, HNB’s main business lines were brought under two verticals, namely: Wholesale Banking and Retail Banking. Meanwhile all support functions facilitating sustainability of the bank were brought under the Chief Operating Officer. Given the importance of our transformation journey, the Chief Transformation Officer and the Chief Technology and Digital Officer were also identified as two key pillars.

We are also aware of the new Government’s focus on entrepreneurship, development of the rural economy, agriculture, manufacturing, and exports, all of which are steps in the right direction. HNB is strategically aligned to each of these focus areas, given our roots in SME since inception over 130 years ago, our presence in microfinance for over three decades, our strong trade finance franchise as well as treasury, payment and cash management and custodian services. As a bank that has partnered the progress of generations of Sri Lankans, we look forward to the opportunities in post COVID Sri Lanka, with confidence, backed by a team that is geared for the future.