Saturday Nov 30, 2024
Saturday Nov 30, 2024
Wednesday, 3 May 2023 00:10 - - {{hitsCtrl.values.hits}}
Standard Chartered Bank’s India and South Asia markets (Bangladesh, Nepal and Sri Lanka) Cluster CEO Zarin Daruwala
Standard Chartered Bank’s India and South Asia markets (Bangladesh, Nepal and Sri Lanka) Cluster CEO Zarin Daruwala is in Sri Lanka on a three-day visit. With a career spanning over 33 years, she has worked across all areas of banking, ranging from wholesale banking, agri-finance, corporate finance, corporate planning, investment banking and credit.
In addition to being selected as one of the Top 30 most powerful women in Indian business by Business Today seven times and being featured in the coveted “BT Hall of Fame”, she consistently features in the most powerful woman in business listing by Fortune India, and Business World has listed her among the 75 Most Influential Women in India.
Under her guidance and leadership, the bank has seen significant growth in its India and South Asia franchise, which has become a key contributor to the Standard Chartered Group’s income and profitability. In this interview she shares key insights to some of the challenges and opportunities for Sri Lanka as well as the role the bank has played as an active partner of socio-economic development over its 130-year presence in the country and the commitment to the future.
Q: The $ 330 million first tranche of the Extended Fund Facility (EFF) from the International Monetary Fund aims to pave the way for the country to achieve better fiscal discipline and improved governance. What do you think would be the most challenging condition/s – set out by the IMF – to be achieved? Do you see this being a roadblock to subsequent approvals under the EFF?
A: The Government of Sri Lanka has taken steps in the right direction to ensure adherence to timelines set out by the IMF. As the country progresses, expectations on revenue targets from the IMF may prove to be optimistic and could pose a challenge, particularly given the relative global economic uncertainty. In parallel, conversations with creditors should be geared towards ensuring the completion of the debt restructuring process by September.
Q: The IMF discusses fiscal consolidation and the imperative requirement to achieve a current account surplus. The primary drivers of the Sri Lankan economic crisis are the fiscal deficit and the Balance of Payments (BOP) deficit – at the heart of which is a negative trade deficit. In your view, what are the next steps for Sri Lanka to move up the global export value chain?
A: As Sri Lanka progresses and moves forward, a significant advantage that it has is its enviable location right in the middle of the world’s busiest shipping route, which accounts for half of all container shipments globally; add to that the demographic advantage of having two-thirds of its population between 15 and 64 years of age. As global supply chains are redrawn, Sri Lanka could look at countries such as Vietnam which have, through the right economic policies, been big beneficiaries of the China plus One strategy. Sri Lanka has had a historical advantage in garment manufacturing; a natural step forward could be footwear, where Vietnam dominates.
Further up the value chain is Taiwan, which has a population similar to Sri Lanka. One could invest in developing a high-technology sector aided by the country’s human capital. These would require one-on-one engagement with a key name which could be the anchor for a sector-specific ecosystem. In Vietnam, for instance, one single name, Samsung, is reported to have accounted for nearly 10% of the country’s total trade turnover in 2022. Other sectors that should be considered for import substitution are where there is a sizable domestic demand and export potential.
Q: With domestic debt more than 50% of Government debt, Sri Lankan banks’ access to foreign-currency funding is constrained by the sovereign default while the risk of local-currency debt restructuring could result in elevated funding and liquidity stresses. In this context, what do you see as the prerequisites to maintain financial system stability through debt restructuring?
A: A detailed assessment of the impact on the banking sector is essential before domestic debt restructure (DDR) decisions are actioned. I understand the Central Bank is already conducting an asset quality review for nine banks. Therefore, it’s important to understand the impact on the banking sector capital due to DDR. If the impact is high, regulators may consider offering regulatory forbearance and a banking sector stability fund to manage potential liquidity stress.
Q: There are several other countries which have gone into debt suspension. How is Standard Chartered looking at default countries such as Sri Lanka, Zambia and Ghana? We are also seeing some multinationals leaving Sri Lanka. What is the view of the Bank on the Sri Lanka franchise?
A: The bank has been in Sri Lanka for 130 years and has partnered with its people and economy through periods of both prosperity and strife. With such a long-shared history, we have a far longer-term view than most – the events of one or two years do not change our perspective or our confidence in the country’s prospects. We have all been through some highly exceptional circumstances, which have contributed to Sri Lanka not meeting its debt commitments for the first time and the Government, along with the IMF, is doing commendable work to restore financial stability in the country. However, these incidents do not reflect the inherent potential and resilience of the economy, and I am confident Sri Lanka will bounce back faster than expected.
Q: What was the bank’s involvement in the domestic businesses post the default?
A: Standard Chartered works towards the betterment of economies and communities that it is a part of, with a focus on our customers and clients. During the current challenging circumstances, we provided foreign currency liquidity to clients and towards critical economic activities that provide basic needs. We were also one of the few banks that supported domestic financial institutions during this difficult time. However, we believe the worst is behind us.
Q: How long will it take Sri Lanka to get back to business as usual?
A: We have seen tourism arrivals, a key metric indicating recovery, increase in 2023; however, there is still some way to go before reaching pre-COVID levels; remittances, on the other hand, have been showing a stronger trend. A weaker Lankan Rupee assists both of these measures, also providing a further fillip to exports. Our Economic Research teams expect the Sri Lankan economy to contract by 1% in 2023 and gradually recover in 2024. The IMF board approval for the $ 2.9 billion facility was the stepping-stone to restructuring current debt and will pave the way for economic revival.
Q: Sri Lanka’s economy has undergone the worst economic crisis with inflation rising at one point to the third highest in the world. What has Standard Chartered done for its people to navigate this crisis?
A: Like everyone else in Sri Lanka, we recognise that our people went through a difficult time over the past year. Accordingly, we have facilitated quarterly ex-gratia payments to all our staff and have made inflationary salary adjustments to reduce the financial pressure. We have also taken measures to enhance our medical insurance limits. Meanwhile, the franchise continued to deliver on our business goals despite the challenges faced, thanks in no small measure to our highly engaged, energetic and resilient team. We will always endeavour to take care of them.
Q: Despite the difficult year the Sri Lankan economy has experienced – possibly the most volatile year in the 130 years that Standard Chartered has been in Sri Lanka – Standard Chartered Sri Lanka’s National Long-Term Rating has once again been affirmed at ‘AAA(lka)’ by Fitch Ratings Lanka with a Stable Outlook, citing expectation of a high probability of support from the head office of Standard Chartered Bank in the UK. How confident are you in the Sri Lankan franchise and its ability to continuously add value and participate in the economic recovery/growth of the country?
A: We are a full-service bank in Sri Lanka, supporting corporates, financial institutions and retail clients, with an unmatched history and heritage in the country. We have seen and prevailed over tough times and cycles in the past too, and I am hopeful that the worst is behind us. Despite the challenging economic environment, the bank’s franchise has performed well and delivered consistent financial performance. Also, it is important to note that our corporate clients are holding well and if the country restructures its debt by September this year, Sri Lanka should bounce back. The bank is optimistic about the future, the revival of the economy, and the prosperity of its people.
