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Tuesday, 18 February 2014 00:01 - - {{hitsCtrl.values.hits}}
By Nisthar Cassim
Q: Can you recap your brief visit in Sri Lanka?
A: We called on Economic Development Minister Basil Rajapaksa and Governor of the Central Bank Nivard Cabraal and met some corporate clients. I also visited the Colombo Port.
Q: What are your views following the meetings and visits?
A: All very positive and very bullish about the country’s potential and the future. All are in expansion mode including the corporate clients. I think the Road Map for reforms in the banking sector is clearly a very good step. I think the Governor is quite keen to see it through.
As far as we are concerned we are feeling good as well, as we are seeing the activity improving. We are seeing our support to infrastructure sector, tourism and hospitality growing among others. So all of this is very positive.
Q: Was the positivism from the official side validated by your clients as well?
A: Yes. I think the corporates are very bullish. They are talking about very specific plans for expansion, etc. This is further validated because we are financing some of these activities, whether it is the ports, Shangri La Hotels, or the John Keells’ Waterfront project as the sole financial advisor. We are also involved in the SriLankan Airlines bond and syndication exercise. So directly we are seeing growth in our own book exposure. By talking to them I found they have much bigger plans that just what we are financing and that is positive.
I think the Minister was very keen to see and think of new ways how Sri Lanka can leverage the growing resourcefulness and infrastructure of the country. They are realistic that the labour here is marginally more expensive than some of the neighbouring countries. But they are also aware that Sri Lanka has the benefit of labour being more skilled than others. It is clearly an excellent destination for the BPO industry.
We hope that the Government pursues its plans on making Sri Lanka a knowledge hub. Clearly this country is a good one for education. We have already seen some of the UK institutions have already opened their campuses or have announced plans. There is lot more scope for general and specialised education.
Clearly the big challenge will be to attract manufacturing industries into Sri Lanka. I think with the labour not being inexpensive and power being more expensive will be a challenge. We have to create the right niches for the manufacturing industry. Clearly with the new state-of-the-art port in Colombo and Hambantota there is huge potential for shipping and logistics related business, logistics.
Q: You have been a regular visitor to Sri Lanka. Have you seen progress in successive visits?
A: I can see very distinct progress. Roads, highways, new construction coming up. The Kingsbury and Taj Hotels being refurbished and new hotels such as Shangri La, ITC being built. All of these are additions. I think there is no doubt that there is positive growth. We are seeing huge positive developments.
Q: In this optimistic scenario, what kind of role does SCB hope to play?
A: Clearly, we have increased our role substantially. We have brought new products to the market. We are working with the Government and Moody’s to upgrade the sovereign rating. That is a new activity. We were involved in the recent sovereign bond issue which was oversubscribed by three and half times. We are the sole financial advisor to the largest private sector project in the country – Waterfront by JKH. So those are all first times. We are going to harness the opportunities as they happen.
Q: Given the rise in global and regional risks, what should Sri Lanka get right?
A: Sri Lanka has enjoyed a reasonably good growth over the years. Even in difficult times the country grew by over 5% and in post-war it has been growing by over 7%. Sri Lanka has also managed successfully to keep inflation under check. The issue really for Sri Lanka is that the country doesn’t see a global downturn, which will impact the growth potential. If the world can avoid a global downturn, it will be beneficial for Sri Lanka.
The next few years are crucial for Sri Lanka because capacities are being built, FDI is being attracted. Things are fine for Sri Lanka to take off in the next three to five years. If Sri Lanka gets the tailwind of the global growth momentum, the country will progress better. As we stand today, it is likely. Japan is up and about. America is clearly coming out of issues and rising. Europe has stabilised. The world is looking quite good right now. If it stays, it is good for Sri Lanka.
Q: If the recovery takes longer with some turbulence in emerging markets seen recently, what options does Sri Lanka have?
A: Potential for tourism is there to stay. That won’t get impacted. If the world goes into a little bit of a slowdown, then Sri Lanka will become more attractive as a high quality value for money tourist destination than other destinations. Investments into core infrastructure, manufacturing will be impacted if the world slows down. If Sri Lanka can create the gaming equivalent of Macau and high-end luxury shopping experience of Singapore, which the country is pursuing, then Sri Lanka will be a favourite of tourism for a very large part of both China and India.
Q: Focusing on the financial sector of Sri Lanka, consolidation is on the cards. What is SCB’s view?
A: From an overall industry point of view there is no doubt consolidation is good. The need for more capital and meeting Basel, etc., size becomes more relevant. The NBFI industry will also stand to benefit. The Road Map by itself is the right way for the country. The real key is in the implementation.
Q: How do you describe the quality and the soundness of the financial services industry?
A: For a market of this size, to have the current numbers can be considered overcrowded in some ways. But each bank has to work within its own strength. There are some areas we can do more and some where we cannot do as much. But that is no different from many other markets. The numbers may change by market but generally you have to pick your spot in each market.
I think overall full marks to the Central Bank. They have done a great job in the way they kept the discipline and did not fall into the temptation of allowing free foreign easy money in the good times as have kept the cap at 12.5%. When the US tapering happened, Sri Lanka had not had the challenges that others had, the benefits of Quantitative Easing (QE), and they are now suffering due to tapering. Sri Lanka has escaped that tapering effect.
Q: The Road Map has a new requirement of setting up a subsidiary for future foreign banks. Can you comment?
A: That is a global phenomenon. India too has the same rule. Most other countries and emerging markets are doing it.
Q: Doesn’t it create an uneven playing field?
A: It does, but it is the choice you make. There are 178 markets in the world and you can choose which markets you want to go to. The fact is that banks which have been in Sri Lanka for a long period despite the 30-year-old conflict have to get ‘grandfathered’ whether foreign or local.
Q: Can you comment on emerging markets and recent challenges faced?
A: There are divergent views between financial markets and actual business people. The latter are very convinced that if there growth in emerging markets is going to be 6% and much less in developed world, then new growth for their business will come from emerging markets. If the US is selling 15 million cars, they are not going to sell 25 million. But China is 17 million cars and they will buy 25 million very soon. The businesses are very clear that future growth is going to come from emerging markets.
The example of cars is no different for everything else – be it food, medicine and consumer durables. Some of the financial markets have taken the view that the emerging markets are fragile and will suffer with US tapering. One has to wait and see. In the medium to long term if emerging markets continue to grow much higher than developed world then they have to emerge back the place to be.
Q: How are the overall East and Southeast Asian markets?
A: The region is doing well and has large markets with rising wealth accumulation. It is a winning combination. It is for the firms to use the opportunity and not for lack of opportunity.
Q: What plans from SCB for the South Asian region?
A: We had strong growth last year. We are the largest international bank in India, Bangladesh and Nepal. We have a long heritage and history also in Sri Lanka and remain a leading bank. We are making up for some of the lost years in Sri Lanka quite rapidly. We remain extremely bullish about South Asia. In fact in 2013 the region was one of the better performing markets within the SCB Group.
Q: How about prospects of boosting Africa-Asia ties?
A: Africa is quite attractive in absolute terms. One is there has been several new finds of energy in various African countries. Second is many of the countries have adopted much better governance. That combination makes Africa far more attractive. Trade flows between the two regions are growing. China’s ties and India’s ties are also growing with Africa. We think Africa is going to be more meaningful in a global context than in the past.
Q: Will SCB be expanding in Sri Lanka?
A: Yes we are on an expansion mode. We are ready to invest in Sri Lanka. In terms of branches if we are expanding it will be out of Colombo as our existing branches are having good business. Banking delivery has changed considerably with growth happening in the digital space. We will see what consolidation does and then align our strategy accordingly.
In Sri Lanka we are focusing on more new products, bringing international expertise and adding value.
Q: How would you rate the human capital talent in SCB Sri Lanka?
A: Talent in Sri Lanka is no less than any other markets. Our young talent is as good as anywhere in the world. In terms of position we are very happy with our status in public and private sector including consumer market. In terms of balance sheet, liquidity, capital adequacy, etc., we are comfortable and on top compared to our competition. In every absolute matrix Sri Lanka stands out quite favourably.
Q: How are SCB’s prospects for 2014 in Sri Lanka?
A: It is too early to say but there no reason to believe we won’t have good year as the economy is growing.
