NSB to expand presence overseas

The State-owned National Savings Bank (NSB), the leader in the country’s rupee savings industry with a significant market share, is now seeking opportunities to expand presence in the international arena.

In an interview with the Daily FT, NSB Chairman Aswin De Silva took time off to speak about NSB’s growth strategies. The following are excerpts of the interview

By Charumini de Silva

Q: What are your thoughts on NSB’s outstanding performance?

A: I think this success has a lot to do with how we have operated in the marketplace. NSB, as the premier state bank owned by the Government, has leveraged on some good opportunities to grow revenue. But our plans are to take this to Rs. 12 billion by the end of this year.

To this end, I have identified four key pillars. First and foremost we are in the process of functioning in the worker remittance market in a bigger way because as of right now we are a small player. But if we can increase our market share with some proactive and clearly outlined plans, I think that will have a huge benefit both for the bank as well as for our diverse customer base. 

At present we have 240 branches and we have an exclusive network, with the postal network plus our ATMs providing us with over 6,000 customer touch points in Sri Lanka. That’s a tremendous advantage. We are the only bank in Sri Lanka where deposits and interest are guaranteed by the Government. This gives a tremendous advantage to the depositor. At NSB we have over 10 million accounts. 

We are ticking all the boxes in terms of managing worker remittances, which is a big area for us. Our current market share is less than 5%. Of course that is highly competitive. Most of the large commercial banks are marketing aggressively. That’s good, we like competition. State banks are marketing that they have networks in key locations from where money is being transferred, whether it is the Middle East, South Korea or the Western World. So we will also have to get onto that bandwagon.    

Secondly, we will focus on improving our technology because at the end of the day the banking network in Sri Lanka by and large is quite strong and all banks have been growing. Technology will take banks to a new level. I’m not talking about advancing technology in the form of improving internal systems. That will happen but I’m talking about technology in terms of online and mobile banking and improving the effectiveness of social media channels like Facebook.

Thirdly, we will look at how we redefine our product architecture and introduce new products to suit current market changes. By 2020, a significant portion of our population is going to be over 60 years. We have an aging population. So how do you move to help them through savings in terms of the deposits? 

Yes, the Government has done the right thing by offering senior citizens a higher interest rate. That’s a step in the right direction. How do you help the Government and where can they offer a little bit more? I’m looking at the entire product architecture. We all talk about customer service; everyone knows about customer service, that’s old fashioned. I want the customers to join us in our decision-making process, in deciding what the products are. I want to listen to them. I want to have customer forums across the country in key places. 

We just organised the first one in Kandy to listen to and understand the customers, to identify the people who are promoting us. We are bringing in a mechanism where we have customer surveys to understand that and incorporate that into some of the product architecture. 

That is being pretty much proactive rather than being reactive. I want to conduct such customer engagement throughout the year. It should be an ongoing thing. At the end of the day, banking is a relationship. It is not like a situation where you walk into a shop and buy a shirt or pair of shoes. You go to a bank because you have a personal connection. You feel free, you feel safe and you also feel you get a good return on your investment. 

The fourth aspect concerns us branching out overseas, particularly to the Maldives and Bangladesh. We will seek the Central Bank’s approval in looking at those opportunities. I have had initial discussions with officials at the Finance Ministry and they are willing to listen to us. I will take some proposals to them to seize that opportunity. This way we can see how we can broad-base our services and look at other businesses. I don’t want to simply be dependent on net interest income because we are 95% interest-income driven. We must see how we can reduce that to about 90% and look at trade finance opportunities and go for more fee-based foreign exchange-driven income. 

We have a lot of plans. I want to take the bank to a different level by virtue of implementing all these initiatives. 

Q: Being a state bank how do you see the competition?

A: I think competition is very good and has to be there. Sri Lanka has a very good network of banking; we have state banks and private banks that are very aggressive in the marketplace offering very similar products at similar rates. 

Competition is good because if you have good competition it helps to improve yourself. We cannot be complacent just because we are the largest savings bank or the only bank where deposits are guaranteed. 

Competition will also help us to reduce our interest yields. We have our interest income, which is generated from our lending portfolio, and then we have interest expenses where we pay back our depositors. 

Since Sri Lanka is not yet a fully-fledged developed country, interest margins are quite large. However, internationally these margins are lower so we need to bring ours down. So how do you bring them down and still increase revenue? That’s a challenge. 

Our strategy is to grow the volumes prudently. In order to grow the volumes we need to be proactive in the marketplace, we need to be visible, we need to transact business the same way we transact business in the Eastern Province, Galle or Matara. I was in the East and Anuradhapura recently opening five branches. In the Batticaloa District we opened three new branches. 

I went to areas where NSB did not have a presence. I opened two branches in Horowpathana and Galenbindunuwewa in the Anuradhapura District. I also opened a branch in Periyakallar. These are remote areas but you should see how enthusiastic they are. They want to understand what benefits banks can offer them. There is money floating around in those areas. I am not quite sure who has been managing them. We want them to participate in business. We are going into under-penetrated, unchartered territory, which is how we plan to grow our volume. 

Risk compliance and credit control are of paramount importance. This is another area that I will strengthen because there is no point looking at expansive credit growth if you do not have a good credit culture. 

We want to move away from collateralised-based lending to more cash flow-driven lending. It’s very easy to apply for a housing loan when you tell the bank I will provide security for credit. But if you don’t have ongoing cash flows to pay for that then the bank is not doing justice to the borrower and we are not doing the bank justice. So it is important for us to understand what your cash flows are. If you look at it from another angle it’s an educated process as well. 

Q: What initiatives has NSB taken to cultivate the saving habit?

A: NSB has always made a concerted effort to promote the habit of saving in a meaningful manner. I think we are ideally positioned to help the Government in that regard to build that momentum in funding. 

Now the Government can go to international markets and borrow money but then we as banks should step in and help them mobilise the funds. We approached international markets in 2013 and 2014 and raised $ 1 billion in the international bond market. 

Then we are not placing the burden on the Government; if we can support the Government to reduce its cost of funds and trade deficit by getting those funds because of our rating. We are the only bank in Sri Lanka which has been rated AAA for 12 consecutive years. Leveraging on those opportunities is a good thing. We have to create a situation where on one side we are mobilising the funds locally and selling that Sri Lankan brand to the international market so that there will be FDIs coming in and only if we create output by virtue of those two sectors both internationally and locally can we ensure a good low interest rate regime. 

If output is growing and we can match that output with the necessary funding then can we maintain a low inflation rate? We have recorded low inflation in March and if we have this low inflation regime then we do not need to raise interest rates. We can maintain a low interest rate. To compensate for the low interest rate we need to continuously grow our volumes. 

We need to reduce interest rate margins, lower interest rates, give the maximum rate to our depositors, give the best possible rate to our borrower in terms of lending, reduce the rate and increase the volume and thereby increase revenue. So that is my idea. We need to partner with the Government in that endeavour in the local marketplace. 

Q: You mentioned that you need to redefine the product portfolio. Is there a specific market segment which you plan to target apart from senior citizens?

A: We have a great product for schoolchildren called Hapan. We have ‘Sthree’ targeting ladies, which is producing very good returns. We have products targeting each of those segments. We are planning to launch a range of products for professional networks in the near future. 

Q: What are your views on the talent we have in the banking sector? In terms of HR development which areas need to be improved further?

A: The talent is extremely good and it speaks for itself otherwise we would not be able to generate Rs. 10.5 billion in profit. I am also looking at strengthening our senior management team. 

When you are looking to expand you need to have the right people in the right systems. This is not easy to do. You cannot build a house and then put in the rooms if the foundation is weak. Therefore, we need to strengthen the foundation by bringing in the right people and the right talent and ensure that we have the right systems. 

We are going to have development programs. I am going to help our staff get into some very good development programs conducted by the Central Bank and banking associations so that they can keep abreast of what is happening and gain some sort of succession planning and job rotation. Job rotation so that one person will not get stuck for 10-15 years. Wherever it is possible job rotation will take place, between the audit and finance departments and between the corporate credit and retail credit units.   

But if we want to jump that barrier and go to the next phase of growth along with the four pillars I mentioned above then we need to strengthen certain areas further, so that we ensure that we are very prudent in our growth in the portfolio.  

Q: What are your predictions on the interest rates for the next six months?

A: I think the interest rates will be low. If we have well-managed, clearly-articulated policies, clear messages, I think we can maintain low interest rates. I think the present Government is an inclusive Government where both sides of the political divide have gotten together, which is a good thing. 

The Government’s policies are clear. We have regular meetings with both the Central Bank and Finance Ministry. It is not fair for us in the banking industry to expect smooth sailing. We also need to create things otherwise my job can be done by anybody. We also have to take a proactive approach. This can be done in an advisory capacity with the Government by saying that these are the areas that need to be strengthened. I think the Government is willing to listen and we have a very good relationship. 

Q: With the low interest rate regime how has the lending portfolio worked out for you?

A: I think it has worked really well. In the first three months we are ahead of the budget and we are on target to achieve our plans. If we can achieve 50-60% of what I mentioned above, I think we can achieve our Rs. 12-billion target.

Our growth has been on a broad base. We have performed well both in terms of lending and deposit mobilisation so we are not dependent on one particular product. We have been actively participating in the Treasury bill market, to bring the interest rate down. We have been utilising some of our international bond money to support the Government in some of its infrastructure projects. We can help them even more as we go along. 

Another important aspect is that although we have 240 branches, we have more than 6,000 touch points because we have a special arrangement with the postal network. You can imagine how broad our range is and we have over 250 ATMs. Everything augurs well for the bank.