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Central Bank Governor Ajith Nivard Cabraal
“If we consider our conditions seriously, Sri Lanka has undergone a massive transformation over the past eight years,” the Governor said at the ceremonial inauguration, listing a host of key political, social and economic achievements.
“We are no longer a country at war but a safe destination. We have political stability, with a stable Government having a two-third majority being able to carry through tough economic measures. Socially, Sri Lanka is now undergoing massive social transformation,” he said.
“Economically, we are enjoying macro fundamentals, which are almost unrecognisable now in our country. This is an unbelievable transformation which would have taken almost everyone by surprise. These changes have taken place in a short period of time where Sri Lanka has experienced massive development. It is almost as if we are living in a new country with new facilities and new conditions.”
Focusing on the community at the APB forum, the CB chief said the financial system is stable and has remained vibrant even in the midst of global turmoil. “Currently a massive consolidation process is taking shape which will bring stability to the entire financial system in the decades ahead,” he added.
The CB chief said that given the massive transformation in the country, the way people work, bank and deal with the world was also undergoing substantive changes.
“The banking sector is at the cutting edge of these changes. Banks have been able to be viable because they have changed with the times,” he said adding, “It is becoming increasingly difficult to keep abreast of these changes.”
Nevertheless, Cabraal said in the next few months and years, banks will also have to reshape the banking model and structures.
“They will have to get used to a lower interest rate regime with tighter net margins, fee-based income and possible private banking will have to be enhanced. Furthermore, consolidation would result in bigger and stronger banks, which means greater competition. Reliance upon IT and technology will be greater, and banks will need to respond to that challenge as well.”
“There will be a major need for top quality professionals in banking, and therefore education and training of such persons would have to take place in a systematic manner. There will be a greater focus on corporate governance, banking ethics and, compliance, which would demand better quality directors and officers to serve in the banks. Better management techniques and planning would have to be improved so that banking services could be driven by the overall vision, and move towards outcomes,” the Governor said.
He said it was important to assist in the revival of businesses and also play a key role in the development of SMEs.
“The banking sector would need to progress in parallel with the growing real economy of Sri Lanka,” he emphasised.
CB Governor prophesied that if all these challenges were met, banking in Sri Lanka would play a vital role in ensuring that Sri Lanka reaches the milestones set for 2020.
Pix by Upul Abayasekara
Today’s technical sessions’ agendaToday (Friday) the technical sessions of the APB Convention will focus on a host of issues with experts sharing key insights. First presentation will be on ICT as an enabler and for customer retention by Executive, Vice President, Technology Services, MillenniumIT, Faiq Faiz and Associate Vice President and Principal-Finacle Strategy at Infosys Rajashekera V. Maiya. The aspect of managing profitability and growth in an era of increasing compliance and regulated environment will be dealt by HNB Chairperson Dr. Ranee Jayamaha. This will be followed by a panel discussion on ‘Current Information Technology and compliance imperatives for banks’ moderated by Immediate Past President (APB), Managing Director Sampath Bank Plc, Aravinda Perera. The panelists are Executive Vice President, MillenniumIT, Faiq Faaiz, Associate Vice President and Principal-Finacle Strategy at Infosys Ltd. Rajashekera V. Maiya, Hatton National Bank Plc Chairperson Dr. Ranee Jayamaha, Program Director/Legal Advisor, ICTA, Jayantha Fernando and Managing Director/CEO, Hatton National Bank Plc Jonathan Alles. The afternoon will see a presentation titled ‘HR Development and Talent Management for future banking’ by Dr. Ajantha Dharmasiri – Acting Director, Chairman of the Board of Management – PIM, University of Sri Jayawardenepura followed by a presentation titled ‘Marketing Strategies in a digital era and social media’ by Unilever Sri Lanka Country Marketing Director Siddharth Banerjee. Thereafter a panel discussion on HR and Marketing imperatives for banks, moderated by President (APB) Piyal Hennayake, will be held. The panellists will be Acting Director, Chairman of the Board of Management – PIM, University of Sri Jayawardanapura, Dr. Ajantha Dharmasiri, Unilever Sri Lanka Country Marketing Director Siddharth Banerjee, DGM Human Resource Management, Commercial Bank Isuru Tilakawardana and Triad Ltd. Jt. Managing Director Varuni Amunugama. |
Good corporate governance, risk management key to sustainable growth in banking – SEACEN AdvisorThe keynote address at the ceremonial inauguration of APB convention was by Michael J. Zamorski, the Adviser, Financial Stability and Supervision of The South East Asian Central Banks (SEACEN), Research and Training Centre.
Sharing his personal views on the topic of ‘Reshaping banking for changing times: Charting a course for sound and sustainable growth’, Zamorski said banks play a critical role in each country’s ability to achieve sound, sustainable economic growth, which is a prerequisite for financial stability.
He said the APB Convocation provides a valuable opportunity for participants to discuss the challenges and opportunities ahead and ways the Sri Lankan banking industry can continue to play a key leadership role in promoting and contributing to the country’s future economic growth and development.
In his keynote address, Zamorski offered some perspectives and insights that will be useful to the discussion to follow today during the technical sessions.
He said successful banks are experts at risk management. Identifying, measuring, managing and controlling risk effectively are vital to banks maintaining a sound and competitive position. In that context, his keynote speech focused largely on risk-related matters covering three main considerations.
First, what risks are bankers most concerned about? Second, what challenges to economic activity and bank performance need to be considered in banks’ strategic planning? Lastly, what are some of the key success factors for banks in successfully implementing sound business strategies in an uncertain and potentially challenging environment?
He also recapped the global macro economic conditions since 2007 onset of the US/Eurozone Crisis. Focusing on Asia Pacific, he said while not being immune to the crisis, the region experienced mostly secondary effects and was currently experiencing relatively stable macroeconomic conditions and output growth. “
However, there is concern over the potential regional impact of cessation of accommodative monetary policy and extraordinary policy measures such as quantitative easing,” he added.
His keynote also focused on the ‘Banking Banana Skins’ survey of the London-based think tank The Centre for the Study of Financial Innovation (CFSI) in association with PwC, which listed top global ranking of the greatest risks facing the banking industry as the concern over over-regulation.
He said the survey noted “a high level of concern that (new) regulation will leave the banking industry better capitalised, but so burdened with rules and requirements that it will be unable to generate sufficient profit to flourish, or compete with more lightly regulated parallel sectors.”
There is also concern about compliance costs, inconsistent application of new regulations and the possibility that certain activities will be driven to the shadow banking system, where they will be unregulated and could potentially pose a threat to financial stability.
According to the survey, the rest of the top five global risks were Political interference – closely related to over-regulation are concerns about governmental and regulatory overreach; the macro-economic environment – the continued economic fragility previously mentioned and risks posed by the unwinding of various post-Crisis stimulus measures; Technology risk; and profitability concerns (mainly due to the cost of implementing new regulations, lingering unrecognized bad debt write-downs and competition by less regulated or unregulated financial services providers).
Asia Pacific responses to the survey reflected somewhat different concerns. The top five risks are the macro-economic environment, interest rates, technology risk, pricing of risk and the quality of risk management.
Interestingly, Asia Pacific is “the only region that sees attracting and retaining talent as a top ten (No. 7) risk issue.”
Zamorski also spoke on the post-crisis regulatory changes and detailed technology risk as highlighted in the survey including the cyber security risk. Zamorski also spoke of threats to profitability and interest rate risks and interest rate risks.
He said that a risk issue that did not appear on the global and regional risk survey list, but could put pressure on some banks’ earnings was a fundamental change in the approach to the accounting for, and financial reporting of, loan loss provisioning.
“Based on lessons learned from the US/Eurozone crisis, the Financial Stability Board and accounting standard-setters determined that a fundamental change was needed due to better reflect changing loan portfolio conditions in published financial reports,” he said.
The SEACEN advisor also shared a few perspectives on the key success factors in successfully meeting future industry challenges.
With regard to corporate governance and risk culture, he said successful banks depend on leadership and strategy execution by experienced, dedicated professional bankers. He said banks’ corporate governance, risk management capabilities and risk culture are the main differentiating factors in bank performance and soundness.
“A primary determinant of bank financial performance and soundness is an independent, actively-engaged and vigilant Board of Directors that serves as an effective “check and balance” on excessive risk-taking,” Zamorski said.
“Corporate governance is enhanced when directors improve their ability to exercise an appropriate level of scepticism and actively engage with management. Banks and their key stakeholders are better served when directors constructively challenge management’s judgments, explicitly consider alternative perspectives, and engage management in frank and open discussions,” he added.
He also shared some insights into risk management processes and governance. Bank risk management and other control processes, such as internal audit and the loan review function, must consider, among other things, institutional size and complexity, business models, financial strength and the competitive environment. Control processes involve careful judgment, and their operation should avoid a mechanical, checklist approach that presents the danger of becoming a substitute for thought and sound judgment.
Organisational attitudes toward risk management, control functions and compliance need to be constructive and supportive.
It was pointed out that compliance should be viewed as a “cost avoidance center” and the Chief Compliance Officer should have sufficient stature, power and influence within the bank so that the control functions under his purview are taken seriously.
Zamorski also told APB Convention that many challenges lie ahead for the financial services industry. “There is no doubt that the talent and resolve of the professional bankers here today is more than equal to the challenges I have mentioned. While APB Convention delegates may be competitors, they all have the same goal of advancing the Sri Lankan economy. Enhancing the nation’s business climate and financing sound business opportunities, including small- and medium-sized enterprises, will benefit everyone,” Zamorski added. |
