Thursday Nov 14, 2024
Thursday Nov 14, 2024
Wednesday, 3 January 2018 00:00 - - {{hitsCtrl.values.hits}}
The highest share of voice(SOV) event of Sri Lanka in 2017 was undoubtedly the alleged bond scam of the Central Bank. Via TV, radio, press, social media and now on the political stage, whether highlighted by the SLFP, JVP or the JO, the echo is one. Fortunately, the President taking leadership and the top-notch commission to investigate the details saved face for the Government. The report was presented on 30December and made headline news in every medium once again.
Viral media was quick to speculate the contents of the 1,400 page commission document. Some websites state that nine ministers are involved in the scam together with clear evidence against the former Central Bank Governor and the key personality associated with Perpetual Treasuries involved in the issue. I guess now Sri Lanka will have to wait and see if the law will be an ass or if justice will be done under the Yahapalanaya ethos.
A point to note is thatI will only deal with the marketing implications of the saga and not the political or economic implications in this article.
A key financial institution that was quoted many times in the bond drama was Bank of Ceylon(BOC). Let me give a quick take on this power brand BOC and implications it had to face in 2017.
Established in 1938, Bank of Ceylon is the leading public sector commercial bank owned by the Government of Sri Lanka, holding the leadership position inassets, deposits, and foreign currency remittances. With 628,689 automated teller machines, 124 CDM networks and 15 regional loan centres, it is powered by around the clock call centres designed to service the commanding 10.1 million customer base. The power of the Rs. 40 billion brand is that it is global in nature, with overseas branches in UK, India, Maldives and Seychelles.
BOC is engraved in the minds of every Sri Lanka as the ‘Bankers to the Nation’ where the work body very righteously practice with a team of committed staff and strong leadership which is an example to the rest of the public sector how a State entity can also be real competitor to the private sector.
Fitch Rating ranks BOC among the 1,000 largest banks in the world, which adds value and credibility to its slogan: ‘BOC – the Bank you can trust’.From a marketing perspective BOC has been ranked as the No. 1 brand in Sri Lanka by Brand Finance for many years and in 2017, was awarded the coveted most valued brand by the Daily FT-Interbrand awards that was graced by the Prime Minister which was an interesting moment to be honest.
If one examine the business health of brand BOC, it has registereda very strong performance in the last three years, growing the top line at 17% whilst profit growth has been as high as 43% against last year. This clearly tells us the strong business leadership that exists given the challenging macro environment Sri Lanka is operating in.
Whilst BOC has a strong financial performance, on the brand side the latest report reveals that the overall brand value that has been growing at double digit since 2013 has crashed to a -2% performance in 17 with the brand value declining from Rs. 41.4 billion to Rs. 40.5 billion according to Brand Finance. Analysts currently point the finger to an image issue the brand has suffered due to the alleged bond scam where BOC had its share of responsibility.
If we go into the details that appeared in the media for a strong SOV, the key news take in many headlines was that BOC was working in proxy with the Central Bank and was responsible for the alleged bond scam.
The strongest media headlines that appeared was on the Parliamentary oversight body – theCommittee on Public Enterprises (COPE) – unearthing the following: The Employees Provident Fund (EPF) had purchased Treasury bonds from the secondary market at a cost of over Rs. 2.36 billion from the controversial Primary Dealer, Perpetual Treasuries Ltd. (PTL). The face value reported was Rs. 2 billion. Apparently theEPF had purchased the Treasury bonds on 11June 2015, just four months after the Treasury bonds issue of 27 February 2015. This subsequentlybecame the subject of intense scrutiny over allegations that PTL was privy to insider information relating to the issue.
Then the media blasted that according to the COPE report, theEPF also purchased from three other Primary Dealersbetween February and June that year, but the investments were comparatively small. The EPF which functions under the supervision of the Central Bank (CB), and has the capacity to purchase Treasury bonds from the primary auction butpurchased a comparatively lower amount of Treasury bonds from the primary market which has a greater yield. Hence, it missed the opportunity of gaining the financial benefits due to the purchase from the secondary market with a lower yield which was the first hit a typical consumer got impacted.
In this background BOC got highlighted on media stating that the behaviour of Bank of Ceylon (BoC) was unacceptable as a top financial institution given that at the auction of Treasury bonds in February 2015, BoC had offered three bids at the rates of 12.50%, 12.75% and 13% up to Rs. 13 billion on behalf of PTL.
It was then reported at the COPE investigations thatthis has been the first instance where one Primary Dealer has offered bids for CB Treasury bonds on behalf of another Primary Dealer. Even though there is no prohibition for a Primary Dealer to place a bid on behalf of another Primary Dealer (which came to light from the report submitted by Ernst & Young, Chartered Accountants), speculation hit all media that BOC was involved in the alleged scam. This was the first news that showed BOC having its tentacles on the political economy at play that created a buzz among the 10.1 million customer base.
Given the media culture in Sri Lanka, more revelations begin to appear with BOC getting deeper into the issue. Apparently in theperiod 1 January 2015 to 31 March 2015, the BoC’s PDU had bid in all seven primary auctions for Treasury bonds conducted by the CB during the period. Adding further injury to the brand the report stated that out of the seven auctions, bids placed at six of the auctions were within the range of 10% to 13.15% of the auction value advertised by the CB. At the auction held on 27 February 2015, BoC placed bids 1,350 times higher than the CB advertised auction value, which sure hurt the confidence level of the 10.1 million customers who trusted the brand for decades.
Thereafter reports from COPE also highlighted that at the auction held on 22February 2015, BoC did not place any bids on its behalf, and placed bids on account of another Primary Dealer, Perpetual Securities Ltd., for Rs. 13 billion, and other customers for Rs. 508 million, without considering BoC’s exposure to credit, market and liquidity risks that shook the financial community.
This was the icebreaker the media wanted and over the next few weeks the media highlighted the linkages which was sure had an impact to denting the Rs. 40 billion brand. I guess if a brand equity check is done, the real impact to the brand can be scientifically checked.
However, from a professional marketing perspective this research cannot be done till 10February as the exposure level of the alleged scam is the talking point on a daily basis at every political stage. Hence the research findings can be flawed.
Then came the next piece of data that took the icing off the cake. TheBOC Chairman and senior officials of three major State banks––Bank of Ceylon, People’s Bank and National Savings Bank–– testified before the Presidential Commission of Inquiry probing the bond scams stating thaton two occasions in 2016, the former Finance Minister had instructed them to make bids at the Treasury bond auctions at lower interest (yield) rates and their institutions had therefore been deprived of an opportunity to make substantial profits.
The senior officials of the three banks went on to say that though they had followed the instructions given by the former Minister of Finance and that the latter had failed to honour his promise that the Central Bank would not accept bids at rates higher than the yield rate range he had mentioned to them. This drove the nail into the coffin from the BOC brand imagery perspective given the brand hook ‘Banker to the Nation’ got hit with a direct testimony by its very Chairman.
This revelation not only shook the customers but the total financial community and credibility of the Nation. Infact the overall nation brand imagery that was growing at 20-35% annually plummeted to just 5% to record 78 billion dollars in 2017 as per the brand Finance Global. Sri Lanka’s growth rate on brand value was similar to countries like Kazakhstan and Algeria which is sad for the country. It also tells us the collateral damage that the country has suffered on this issue.
Media was hard on the BOC Chairman’s revelation and started unearthing the political economy and its influence on the normal working arrangements on the brand promise‘BOC – the Bank you can trust’. I guess the loss of almost Rs. 1 billion that was shaved off between the 2016 brand value and the 2017 value can be attributed this fact. If one really wants to see the linkage, a simple brand equity study as mentioned before can throw out the findings but may be a deep dive by Brand Finance UK can give the insight to the real issue.
Another point that needs analysis is why the new customers attracted has slowed down to 11,200 as at end September 2017 as against the performance in 2016 that was 72,632. Was there a direct relationship to the brand imagery hit BOC was faced with?
Whilst Sri Lanka now awaits the President’s address to the nation on 3January on the Bond Commission findings and the mobilisation of the case legally, the crux of the matter ishow the number one brand in the country has been dragged to the media on corruption which does not do justice for a respected company that has a 10 million customer base.
If one uses marketing jargon we call this situation inconsistent behaviour of a brand,which is seen in the market place affecting brand equity that exists in the customers’ minds. This finally results in a situation where brand value drops just like the case of BOC even though the financial numbers are strong.
What BOC needs to do is to execute a detailed brand equity study and develop a marketing programme to heal the damaged health with the customers. The quicker it goes to the drawing book, the quicker the correction phase can be done. The issue is, will it be politically correct?
What’s more relevant to us in the business world is that whilst we can commend the organisation for having delivered the numbers(top line revenue and bottom line profit), the qualitative performance of a brand must also be monitored and analysed just like what was demonstrated with BOC.
(The author has served top multinational companies for almost 20 years including the UN and currently heads a global property development company as the CEO. The thoughts are strictly personal views based on the research done and may have its own limitations of the study.)
Brand Finance responds
Ruchi Gunewardene, Managing Director, Brand Finance Lanka has sent the following statement.
I refer to the article titled “Sri Lanka’s No.1 brand dented by bond scam?” authored by Mr. Rohantha Athukorala which appeared in the Daily FT of 3rd January 2018 quoting data from Brand Finance Lanka. Mr. Athokorala refers to the Brand Finance annual brand league table and attributes the change in value of the BOC brand to the negative publicity generated around the bond scam. For our annual brand league table reports, every year we carry out an independent market research study to ascertain the consumer brand equity. The data that is in our possession does not show any association between the media publicity related to the bond scam and BOC. Therefore there is no link in the changes in BOC’s brand value with that of the bond scam. Mr. Athokorala’s conclusions are therefore presumptuous and totally incorrect.
Authors response:
As mentioned in the article the authors objective was to share the best practice that the evaluation of a business performance must not only be on financial criteria like Net Revenue or Profit but on qualitative data like brand value. A case in point is Bank of Ceylon( BOC) the net revenue growing at 17.2% to Rs.154 billion and profits have grown by 43% Rs.24.7 billion in 2016 whilst brand value grew by 9% to Rs.41.4 billion. Strong growth is seen in 2017 too as at end Sept to Rs. 138.3 billion and profit to Rs. 20 billion. Incidentally the brand value has been growing by 59% in 2013, 28% in 2014, 23% in 2015 whilst in 2016 it was 9%. The question is why did brand value decline to -2% in 2017 and how can a company rebuild this. It was an objective analysis. No conclusion was made but only a question asked. Hence the title of the article " SL's no1 brand dented by Bond Scam? ".
