Saturday Sep 21, 2024
Saturday Sep 21, 2024
Friday, 4 October 2013 02:24 - - {{hitsCtrl.values.hits}}
Q: What do you believe is the reason behind 2013’s slight credit growth slow down?
A: You can’t just take six months to evaluate this – you have to take the last three or four years. We have never seen credit growth like this before, and it has been extremely good for us. In fact, all the banks in Sri Lanka had to go out of the country to bring money into the country in dollar terms. When the war ended, a lot of corporate and SMEs were ready with their proposals, and we saw a huge credit boom. What we’re seeing now is some sort of a consolidation, and in the second half of 2013 we may see a large difference. Everyone is now putting in money, loans are approved and they’re doing what’s necessary to get their projects off the ground. But it will take a little more time before these projects commence and become profitable, after which we may see another credit requirement arise. The low interest rates that we are seeing now should encourage the private sector to create more projects and further investment in the near future.
Q: What has the main impact of the gold crash on Sri Lanka’s banking sector been?
A: All our banks have made a lot of money off pawning in the past – so this is simply a correction. Just like the interest rates and exchange rates, a correction is happening. I believe that Sri Lankan banks are extremely resilient. I firmly believe that this year is a consolidation year as lower credit growth and pawning is a real issue. The banking sector should come out of this by the end of the year as pawning is a one year operation. The advances that will be given at the beginning of the year will come to end by December – which means maybe another three or four months of difficulty after which things should be fine. We’ve also seen banks getting into other areas of lending, and bringing down their pawning portfolio, which is good for the country. A major portion of pawning is going in for consumption – so what’s happening is that consumption is going to be a lesser priority for banks in the time to come, and the development and commercial oriented lending will pick up the slack.
Q: Pawning has traditionally been seen as an avenue of financial inclusion as relatively asset-poor individuals had the opportunity to access finance/the banking sector. With less pawning, what will be the effect on financial inclusion?
A: Yes, pawning is absolutely vital as an instrument of financial inclusion. This is why banks do not turn down customers. However, the amount of money for a sovereign value is going to be less. Other than that, I don’t think the numbers will change, but the volumes may change.
Q: The IMF recently warned Sri Lanka against the impact of the US Federal Reserve tapering on emerging markets. How do you foresee the banking sector coping with this?
A: The major impact of the US Treasury tapering off their debt purchases is pawning itself. When the US economy was not doing so well, people started investing further in gold and precious metals rather than US instruments. If the tapering commences, it is an indication of the US’s recovery. Then, the reliance on gold will reduce – which is what happened to the pawning product in Sri Lanka. Apart from that, our exports to the US are about 50% – so if the US is recovering, we should consequently see our exports recovering too. There has been some discussion that via Sri Lankan papers, a lot of money is coming in. So there is some speculation that if the US and EU recover, the money that was coming here may cease. But I question this because the returns that investors get on such instruments will be much less than what Sri Lanka is offering right now. So I don’t think there will be a huge impact, although the recovery of the US economy is positive for the global economy in general.
Q: The Government plans on developing the non-banking capital market (corporate debt market, equity market, corporate off-shore borrowing, etc). How will this affect the banking sector?
A: There will be a re-direction of credit, as most large corporates will aim for corporate debt or look outside the country. So their reliance on bank borrowing is going to be much less, which means the banks need to look at other methods to keep their corporate portfolios up, and different ways of channelling their credit to other areas. On the other hand, there is nothing to prevent banks from investing in corporate bonds themselves. While previously a particular corporate may have been a borrower, now we can possibly invest in their debt. So banks need to have their own individual methods to cope. But I think a strong demand from medium-to-large companies as well as SMEs will offset these requirements.
Q: The goal is for Sri Lanka to be the region’s financial hub in the medium-term future. What can the sector do to realise this status?
A: Our main issue is that our local banks are quite small in size. Yet, there is nothing to prevent the government inviting top foreign players to Colombo to play the role that larger banks usually play in a financial hub. While local banks will also play a role, external players may also be invited in. Right now, if you want a syndicate loan, you will have to go to London, Dubai, Singapore, etc. Almost all Sri Lankan banks have so far been content to remain local banks. But at some point we also need to consider leaving our shores, but this can only come with adequate size and profitability. But in our cultural context, people believe that Sri Lankan banks make too much money. But if we want to get into a situation to get our banks to expand and make the country a financial hub, we need to question whether the banks are making enough money.
Q: What do you see as the SL banking sector’s primary achievement in the span of the 25 years of the existence of the APB?
A: We are primarily expected to make sure that Sri Lankan bankers are professionals that are competent globally, and we have achieved this. Wherever you go in the world, you will notice Sri Lankan bankers in top positions. This is of course also in some ways negative because we have lost their services in the country. What we aim to be is a forum for professionals to voice their views, network, and facilitate Continuous Professional Development (CPD). We hold some forums and seminars, although not as much as we’d like because bankers are spread all around the country, which makes congregation difficult. We also hold an annual conference and issue a publication. However, with our limited resources, we have managed to achieve what we set out to.
Q: What are the APB’s goals for the future?
A: As of now, APB is driven by the seniors. I’d like to see the upcoming, young professional bankers more involved in running the association, and making a bigger impact on what we do. In this way, they can charter the way that the APB goes into the future. Seeing this change can move everything for the better.
Q: What new aspects were introduced in the APB’s 25th year?
A: This year, we’ve done a set of different things, such as going out into the various regions. We held a quiz program and public speech in Jaffna, and blood donation campaign and variety show in Ratnapura. We also held a few well-attended religious and CSR projects. But we also need to be doing a few things that young bankers want to get involved in – not just stereotypical banking lectures. So I hope this tradition continues into the future.
