People’s Merchant Finance transforms to profitability after a decade

Board of Directors (from left): Director Ranjith Kodituwakku, Director Duleep Daluwatte, Director Travis Waas, Chairman Chandula Abeywickrema, Director Rangana Koralage and Director Channa Manoharan

• Company shares key insights to transformational change by laying strong foundation for future growth

People’s Merchant Finance PLC (PMF) incorporated in Sri Lanka on 26 January 1983, has been navigating the challenges of Sri Lanka’s banking, finance, and leasing industries for the past 35 years. Dedicated to serving the financial needs of small and medium-sized businesses and individuals across the nation, the Company strives to enrich the lives of more people in more places by providing financial services whenever and wherever the need arose. 

However, this goal has remained heretofore unrealised. In the recent past, the lacklustre performance, the rapid advances in technology, and consistently changing consumer needs which created a need for new ways of doing business increased the inherent challenges faced by the Company. This emphasised a need to renew, revitalise, and reposition PMF to engage on a level playing field with today’s consumers and industry competitors while exploring the heretofore uncharted potential of the Company.

Embarking on new journey to realise true potential  

This new focus by the Company resulted in the search for a strategic right-fit investment partnership to enable PMF to pursue fresh and innovative business prospects and evolve to the next phase of business growth. Accordingly, in May 2019, PMF’s corporate journey achieved a milestone with the arrival of a new major shareholder, Sterling Capital Investments Ltd. (SCIL). SCIL is part of Sterling Japan Co. Ltd., and the largest exporter of Japanese vehicles to Sri Lanka. The Sterling Group subsidiary, Sterling Automobiles Lanka Ltd., operates Sterling Aftercare Guarantee Centres. SCIL is also a perfect strategic fit for PMF’s business model that, to date, has mainly focused on vehicle loans and leases. As of September 2020, PMF’s lending portfolio consisted of 80% of vehicle loans and leases.

With this new partnership, PMF received the required capital base and strong backing to restructure and revitalise the Company’s business goals and processes to pursue innovative and lucrative new business opportunities. The first order of business was to strengthen the Company’s governance and risk management frameworks. To facilitate this imperative, a new Board of Directors consisting of top professionals with strong financial acumen and expertise in various functional fields; were appointed to lead the business to unlock future potential. 

Thereafter, restructuring was directed at securing the right people to lead key business functions of PMF to consolidate operations and remove existing weaknesses. The Company appointed leading professionals with extensive expertise in their chosen fields to lead the Human Resources and Administration, Credit, and Finance functions, and the Recoveries division.

As the next stage, a Chief Risk Officer, a Chief Internal Auditor, and a Compliance Officer were appointed. The Company also reviewed existing processes and put in place more robust risk and governance procedures to meet increasing industry compliance requirements while safeguarding the interests of all our stakeholders.

Renewed strategic direction with the right people in the right place

Having successfully put in place the people required to drive future business growth, the Company focused on improving internal processes and systems and developing new products which would be the basis of improving key performance indicators. Stringent review and monitoring methods were put in place for the diligent performance management of the deposit and loan portfolios. To continue PMF’s promise to offer service excellence, customer-facing activities are being reviewed to offer greater customer convenience. Currently, the Company is developing new and innovative products to meet changing consumer needs and market conditions. PMF is also ready to serve a new target customer base, those who thrive on building domestic businesses to develop local industries and the national economy. The Company plans to release an Entrepreneurial Loan Scheme to support Sri Lanka’s small entrepreneurs with a vision to succeed and grow in the future by mid-2021.  

Furthermore, technology evaluation is nearing completion, and PMF plans to adopt state-of-the-art systems to replace cumbersome and obsolete internal processes with the first implementation by the end of 2020. The advent of COVID-19 in March 2020, also showcased the importance of technology to continue business without interruption, further driving home the importance of incorporating technology to achieve business goals, the next step which the Company will pursue as part of its restructuring actions.

Working on a sustainable performance agenda  

Today, despite the setbacks caused by COVID-19, PMF has realised its goals of performance improvement and customer satisfaction. While much is attributed to PMF’s continued efforts to provide unfailing service excellence to their customers, the Company’s revitalised short, medium, and long-term plans developed in the last year is the key to their success in these difficult times. The steps which were taken to restructure and revive the Company’s business, using modern methods of reaching customers and providing financial services, together with the strong support from the new primary shareholders, SCIL, and the strong management team has borne fruit. Key performance indicators showcase the growth achieved by PMF in the first six months of the current financial year 

(1 April to 30 September -  See box).

The turnaround performance in the second quarter of the current financial year is the culmination of the efforts of the Company’s dedicated employees and revitalised business strategies pursued by the management as directed and guided by the Board of Directors. The focused loan recovery strategies implemented in the short-term enabled PMF to reduce its non-performing loans (NPL) ratio by 9%, while the perseverance of the Company’s employees together with the tireless efforts of the marketing team resulted in an increase in the Company’s gold loan portfolio and total loan portfolio during a time when economic activity has been sluggish, a direct impact of the COVID-19 pandemic.  The Company is encouraged to see a positive albeit small growth in its deposit portfolio despite the hardships faced by Sri Lankans in the last 7+ months. PMF considers it a show of confidence in PMF’s creditworthiness by customers and other stakeholders to have been able to achieve these successes in such a short period and prevailing circumstances.  

CEO Nalin Wijekoon’s view on team commitment leading to a committed path to new successes

“Our Company has utilised the strategic strengths and synergies of the Sterling Group in establishing a healthy foundation through a solid capital base achieved in FY 2020/21. The exceptional governance framework has enabled us to pursue a pathway of progress towards a record turnaround in earnings growth contributed by significant improvements in the core business model within a short period.

We are embracing the digital sphere by redefining our business processes and challenging the traditional industry boundaries, to stay ahead of the competition and weather the external shocks prevalent in a post-COVID-19 world. We are confident of delivering value to our shareholders while committing to further strengthening our relationships with all stakeholders as we progress in this new journey we have embarked on.”  

Chairman, Chandula Abeywickrema shares his vision for transformational leadership

Commenting on the new transformational journey of PMF in the next five years, Chandula Abeywickrema, the Chairman of PMF and a senior well-respected banker, articulated the number of key initiatives the new Board of Directors have embarked on. He first reflected on the Company’s below-par performance in the past, attributing it to a combination of factors which challenged the Company’s financial performance resulting in a continuously underperforming entity, plodding along on inefficient and ineffective branch operations. Mr Abeywickrema then explained that the new management team began rectifying these issues by placing skilled and professional experts to manage day-to-day business operations. This new corporate management team then brought in greater operational efficiency to the branch network by managing costs and expenditure and effectively utilising the Company’s resources and assets. Decision-making became more streamlined with business expansion decisions being based on what is desirable, what is possible, and what is practical while taking into consideration the evolving market conditions and macroeconomic dynamics of the country.

“We are indeed now very delighted with some of the key changes we have made so far, and the change of direction which we moved on. The mobilisation of the internal and external strengths at our disposal is now beginning to bear results. All financial indications point toward greater and better times ahead for our Company,” the Chairman said. 

In this regard, Abeywickrema attributes the professional approach adopted by the Board, the wealth of expertise and experience, and the wisdom of individual Board members together with the dedicated efforts of the management team in executing key initiatives and engagements at the right time in the right way as the basis of the turnaround experienced by the PMF in the last year. “The Rs. 22.3 million profit earned in the second quarter of the FY2020/21 compared to the consecutive years of underperformance by the Company is also proof of this,” he said.  

The Chairman further commented, “Despite the COVID-19 challenges, PMF will follow through on the revised strategic plan for the next five years, and we will adopt very practical business strategies keeping in mind the challenges that surround our society and the banking and finance industry in today’s economic conditions.”

The journey ahead

PMF is now wholly future-ready. Ready to take on new challenges, ready to thrive on new opportunities, and ready to conquer a new growth phase. Most importantly, the Company is now on a clear and sure path to achieve its goal to enrich the lives of more people in more places by providing financial services whenever and wherever needed. The support given by all stakeholders is invaluable. The confidence placed in the Company by customers ensures future success. The Company has just embarked on this new future, a future which is expected to reinvigorate PMF’s business focus and growth. The Board and Management of PMF look forward to achieving greater heights of success sustained by every small achievement today and tomorrow.

Corporate Management (from left): DGM HR and Administration Bharatha Manjula, CEO Nalin Wijekoon, DGM Gold Loans and Deposits Yasas Ariyaratne, and DGM Credit and Operations Amila Katuwawala