Monday, 29 July 2013 00:00
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Standard Chartered’s Regional Chief Executive Officer for India and South Asia Sunil Kaushal gave two thumbs-up, envisioning prospects of Sri Lanka and the South Asian region in the future in a discussion with the Daily FT, but alerted the industry to be vigilant on the tapering with quantitative easing, or QE3, as it is known.
Counting over 23 years in the banking industry, Kaushal is responsible for Standard Chartered’s operations in South Asia, which includes India, Bangladesh, Sri Lanka and Nepal. He has held several senior roles within the bank across diverse markets and served as President and Chief Executive for SCB Taiwan prior to taking up his latest role within the bank.
Below are excerpts from the
interview:
By Cheranka MendisQ: What are your views on the Sri Lankan economy?
A: The Sri Lankan economy has done well and in comparison to regional economies it stands out. Especially from where I sit, it is one of the more attractive markets for us, and is growing well. Like many emerging markets it has some clear areas to focus on, particularly on the current account deficit, how to attract a steady flow of good quality overseas investment funds. But the good thing with Sri Lanka is that you have a very effective political system and the decision making is good. One can see some very large infrastructure projects not only getting announced but getting implemented as well. That sets the platform for future growth. While there are challenges, as there would be in any emerging market, the opportunities and positive sentiments clearly outweigh them. We are very positive.
Q: What sort of challenges and opportunities do you perceive?
A: As I said, the current account deficit, the ability to attract on a steady basis high quality investment flows, how you grow your exports in a diversified manner without too much over-reliance on any particular markets, and the fiscal deficit issue, the balance between investment and more consumption led spending or interest rates, are some of the challenges the country faces at the moment. However, these are not unique to Sri Lanka but are common to emerging markets.
Q: The latest SCB report is titled ‘Sri Lanka – Pessimism is Overdone.’ What are your thoughts on this?
A: That is exactly what we believe in. Having said that, we have to be vigilant in general as the emerging markets are coming under a lot more scrutiny, especially given the likelihood of a tapering with QE3 (quantitative easing) – whether it is in the next six to nine or 12 months, it is going to happen at some point of time. The journey towards tapering is going to be quite a volatile period. I think once we are actually in the phase of tapering it may not be such bad news because that would mean the global economies have stabilised. It is important that we remain very vigilant as authorities are in your country, about the likelihood of the volatility that is going to happen.
Q: What is your regional outlook for the banking industry?
A:Regionally, the banking sector in South Asia remains resilient. It is clear even when you look at the effects of the financial crisis of 2007/2008. Most Asian markets performed well and were largely unscathed from the impact. There were secondary impacts as there are certain players cutting back, withdrawing, reducing exposure because they have to focus on their home markets, but largely the domestic banking sector has been very well managed and resilient. Credit for this goes to the local regulators who have done a commendable job. There was a time when the East would look up to the West for direction. This is a very good example of how the East has done extremely well through the crisis.
However, different markets have different challenges. In markets like India the clear focus of the sector is on portfolio quality and stress, given the sharp economic slowdown taking place. Banks are a mirror image of the economy so it is not surprising that the portfolio is getting some stress when there is a slowdown.
For Sri Lanka the challenge is slightly different and is more about how to increase credit growth, how to support growth which in turn will support economic activity. The regulators are doing the right things to support credit growth in this economy.
Bangladesh continues to be pretty solid despite political disruptions but the banking sector in general demonstrates good growth. Nepal again is pretty stable even in the backdrop of a very tough political environment.
Q: In this context, how do you see the Sri Lankan banking industry?
A:I am not an expert on the local banking sector. But from where I sit, we see opportunities in both wholesale and retail businesses. We see good growth in our businesses and remain very positive and will continue to invest in both businesses. One dreams about the stress concerning the gold portfolio given the depreciation and the gold values, which is a legitimate concern. Gold has corrected fairly significantly. But I think your regulators and banks are on top of it.
You could see some stress because the sector has grown quite aggressively, but it is not something which is uncontrollable or is of huge concern. You are in a situation where you should be promoting exports, credit growth and overall growth which is a good situation to be in with regulators supporting that agenda.
Q: Any market risk the industry should prepare for in the future?
A:There could be any event risk in the market which is very difficult to predict. But when I look at the next nine to 12 months I would think we just have to watch out for some of the liquidity that is going to be taken out of the system which will be via tapering of the QE3, which will happen at some point of time.
What impact it has on our markets will have to be very closely controlled and calibrated – if it is not managed well it can have quite a severe impact that can be very disruptive. I think global regulators are aware of the challenge and would do it in a way that is least disruptive; that is the expectation. But this is what we have to watch out for pretty closely in the future as it could impact across many areas – be it possible action on exchange rate, interest rate, availability of credit, etc.
Q: How does Sri Lanka fit into the regional operations of the bank?
A: Sri Lanka for us is one of the most attractive markets in terms of growth. We have had two very good years of growth and we see it extending to the medium and long term as well. Our plans are shaped given that outlook. Of course, things won’t go up in a linear manner, you will have a few bumps, but overall when you look at the opportunities, it looks very attractive. I am glad that the brand presence we have here and the client base positions us strongly to seize this opportunity that the market offers. I am very optimistic of the growth prospect of our business in Sri Lanka.
Q: How do you see the consumer banking sector shaping up?
A:Consumer banking has done well for us in the past few years but is a smaller business compared to the wholesale bank. That is a business where again, opportunities are good, though there is no huge population. Nevertheless, in the context of the market, the opportunities are good. We are growing our businesses – credit card business, mortgage business and investing in our SME business which is managed within the consumer bank.
The challenge here however is how we get the best productivity and efficiency out of the investment we make in the retail business. This is an area that lot of thought is going into in terms of how to make it more broad-based.
Q: In previous forums you have spoken highly of digital banking for the future. Could you share some of your thoughts in this regard?
A:Digital banking for us is almost an imperative because we don’t have the branch presence of some of the local banks; it is always going to be less than most of the local banks. How we use technology and digital banking to make up in many ways for the lack of branch presence to work to our advantage, is what we are looking at. How do we fill the gap due to the lack of branch presence? Digitalising will therefore play a massive role.
How do you harness technology to meet objectives that cuts across various channels? It could be on online banking, on mobile, through ATM, etc. How do you just become omnipresent without necessarily having a brick and mortar presence, how do we fill that gap? This is where digital banking comes in. It is also used for acquiring new clients, through the online space, and can be very powerful.
It is currently at an early stage but clearly an area you will see increasing focus and investment being made. We want to be the main digital bank for our customers – globally, regionally and locally.
Q: Your theme of ‘Here for good’ transcends beyond business to corporate responsibility. Could you elaborate?
A: For us, it is not just about doing business and doing well in our business. It is a more broad based approach in terms of doing banking to serve a community but at the same time giving back to the community in other forms and not just banking. This is where the CSR activities and brand promise comes into play which is ‘Here for good.’ It is a simple term but has multiple meanings.
One of the objectives we have set for ourselves is how do we continuously prove that we are here for good. It is a powerful thing when you have to prove this. You are here for good only when you are at your best, so how do we prove this each time? In many ways this is inspirational. It is very much part of our DNA and we do it not because it is another box we need to tick, but for these reasons.
Q: Where do you see the Sri Lankan banking industry in the next five to 10 years?
A: I would assume that you would have a lot more digital presence. I am hoping that the capital markets would be far deeper, broad based and more developed. I would expect the mutual fund industry to be developed in the next five years. If you really want investments to grow and capital raising to happen you need to have a very vibrant stock market, along with a retail presence which ideally comes from the mutual fund industry. In the next five years there are a lot of plans in terms of investment activity. This can be sustained so long as you have access to long term funding. Some of these things I mentioned in the capital market and the banking sector have to be developed quite significantly to be able to support those ambitions.
