35th APB Convention highlights role of banking in economic revitalisation

• Advocata Institute Chairman Murtaza Jafferjee argues credit inclusivity is lacking
• Suggests need for diversity of financial institutions beyond commercial banks
• HNB CEO Damith Pallewatte says AI models are intrinsically discriminatory and must be updated frequently
• NDB CEO Kelum Edirisinghe states digitalisation is key to bridging transaction gaps
• Banking Finance and Insurance Institute of Nepal Managing Director/CEO Dr. Binod Atreya persuades Sri Lankan bankers to adopt open banking strategies to enhance risk assessment and financial inclusion

By Janani Kandaramage

Sri Lanka’s banking sector potential was spotlighted at the 35th Anniversary Convention of the Association of Professional Bankers (APB) held last week.

Titled “The role of banking in revitalising sustainable recovery and economic growth”, the forum focused on the country’s banking sector to embrace innovation, expand financial inclusion and adopt digital solutions to strengthen the national financial infrastructure. 

The convention brought together industry leaders and top experts to discuss and share insights on the evolving role of banking professionals in shaping the financial sector. They deliberated and agreed that Artificial Intelligence (AI), open banking and diversified financial institutions are key to building a more inclusive and resilient economy.

The event also featured a series of workshops and panel discussions aimed at addressing key challenges and opportunities. 

APB Senior Vice President and Convention Chair Anton Arumugam called the seminars an opportunity to exchange banking insights, network across the banking community, and dissect recurring threats to the banking sphere. 

He labelled banks as the key driver of business growth, economic sustainability and financial stability-observing that it is the duty of banks to remain aware, proactive and adaptable to emerging trends in credit demand and the rapidly evolving digital landscape. 

The first session, focusing on ‘Innovative solutions for financial revival’ featured Advocata Institute Chairman Murtaza Jafferjee who spoke of the critical need for financial inclusion. 

“In terms of income distribution, the top 20% get 15% of the income whereas the bottom 20% only get around 4.6% of the income. It was a UNDP study that showed that 1% of the richest households hold a significant portion of the world’s wealth, often cited as possessing nearly twice as much wealth as the remaining 99% of the global population combined. This stark level of income inequality, is indicative of the inadequate credit availability to the ordinary. This means the banking systems globally lack financial inclusivity,” he said.

Jafferjee also spoke of the overwhelming number of land deeds given as collaterals, exacerbating the exclusion of low-income individuals as many do not own land or property, nor have the necessary assets to pledge. 

Speaking about the credit crisis facing Sri Lanka, he said: “Total interest payment this year was Rs. 2.95 trillion this year, around 8.8% of GDP, the highest in the world. This shows that fiscal consolidation is not easy, debt is snowballing faster than GDP, posing limitations to the potential of debt restructuring. The problem is due to high interest rates.”

“Why do I say that? The rates are as high as around 11%, which doesn’t make sense considering the inflation target is at 5%. This means the default risks are becoming embedded into the system, raising alarm over a possible market crash in the future, necessitating the need for another debt restructuring program,” he opined.

To enhance credit accessibility in Sri Lanka, the Advocata Chief suggested the need for a diversity of financial institutions beyond commercial banks, and leveraging technology to optimise limited resources as a means of strengthening the national financial infrastructure. 

Jafferjee also emphasised that targeted monetary policy, offering lower interest rates specifically for underserved communities can promote equitable economic growth.

The presentation was followed by a distinguished panel moderated by People’s Bank Deputy General Manager Wickrama Narayana — featuring HNB Bank Managing Director/CEO Damith Pallewatte, NDB Bank CEO/Director Kelum Edirisinghe, Banking Finance and Insurance Institute of Nepal Managing Director/CEO Dr. Binod Atreya and Murtaza Jafferjee. 

The discourse focused on innovative solutions for financial revival in a post-crisis Sri Lanka.

The HNB CEO emboldened the importance of increasingly digitalising banking systems, noting its potential in helping banking officers quickly identify risks and make informed decisions based on multiple sources. 

“I definitely advocate for AI driven lending practices. Last year, 440 billion transactions were done in Sri Lanka. However, in China around 70 billion transactions are done per day. By increasingly advancing our systems, we can use this massive pool of data collected to come to accurate and balanced conclusions, aiding with informed decision-making.” 

Nevertheless, Pallewatte acknowledged the several challenges associated with technological integration, highlighting that AI models are inherently biased to race, gender, and socioeconomic status as these models are based on historical data. 

Although these models can be restructured to fit evolving trends, he recognises the constraints to collecting customer information that can enable these revisions. 

Justifying the HNB CEO’s views on the threats posed by AI to financial systems, Edirisinghe said: “Nevertheless, I still believe that digital adoption is key. We have an effective digital framework but we have not been able to properly integrate it into all facets of business. As we move toward the widespread adoption of advanced systems, there is a growing focus on enhancing the management of fraud while simultaneously improving customer experience.”

He also said key developments include the introduction of more effective credit servicing mechanisms and the use of QR codes that establish a secure, undisputed identity for each customer.

When asked about strategies aimed at bridging common transaction gaps that hinder financial inclusion, Edirisinghe said Government and banks must prioritise a digital first approach, and offer incentive schemes specifically tailored to groups such as women, elderly, and children in rural regions. 

Jafferjee, however, argued that there are many other factors stalling growth, including lack of finances to Small and Medium-Sized Enterprises (SMEs). 

He highlighted that sustainable growth can be accelerated with rising industry competitiveness facilitated by banks in the form of loans, guarantees and microfinance incentives to these enterprises that makeup around 92% of all national enterprises. 

Jafferjee attributed this lack of growth to banks’ static mindset, emphasising the need for a transformative shift in their operating models. 

He urged financial institutions to integrate AI and revision credit criteria to ensure broader accessibility. He also noted that bankers play an integral role in attracting Foreign Direct Investment (FDI) via a diversity of financial solutions. 

The Advocata Chief believes this will not only encourage retained earnings to be reinvested, but will encourage them to increasingly relocate to Sri Lanka which is crucial to investment. 

Speaking about his experiences as a banking strategist, Dr. Atreya claimed economic interaction is more pronounced in banks than economic transformation and banks must leverage this capacity to drive transformation in the long-term. 

He said the key obstacle to financial inclusion in countries such as Nepal and Sri Lanka is asymmetric information which can be alleviated via open banking.

Highlighting the benefits of open banking, he said: “The access to detailed and real-time financial and transaction data enhances the credit evaluation system as we are able to more accurately assess the creditworthiness of different individuals. In addition, open banking gives credit to those who struggle to seek credit.” 

He spoke of India’s Unified Lending Interface (ULI) that streamlines the credit appraisal process by enabling the digital flow of information, such as land records, directly to lenders with the borrower’s consent. 

This approach, he believes, should be integrated across the world as it reduces reliance on traditional collateral and provides a more comprehensive understanding of rural cash flow patterns.

Dr. Atreya urged Sri Lanka to adopt a similar system to expand financial opportunities for underserved communities. 

- Pix by Upul Abayasekara