From left: Ruwindhu Peiris, Stax Inc. CEO Rafi Musher and Stax Inc. Sri Lanka Director Kumudu Gunasekera
According to Stax Inc. Lanka, banks will have to start segmenting the market and specialize in areas where they can really excel at, to compete and enable a sustainable growth.Sri Lanka’s post-consolidation banking sector will have to focus on areas where they are good at, rather than trying to become ‘everything to everyone’, in order to be competitive and increase margins going forward, a global strategy consultancy firm said.
“Overall, each bank will have to figure out their segment. We don’t have that in the current banking industry. Everyone tries to be everything to everyone. What this (consolidation) will force is that specialization to come in.And each bank will have to pick which sector they are going to specialize in going forward, in order to be able to get their service revenue (interest income),” Stax Inc. Sri Lanka unit Managing Director Ruwindhu Peiris said.
He said the Sri Lankan banks are conservative and that has resulted in a massive unutilized liquidity in the banking system at present.Bringing up a very crucial point, Peiris claimed that certain sectors are unable to obtain bank credit in Sri Lanka as the banks lack the in-depth knowledge on emerging sectors, such as information technology (IT), particularly. “If you take the IT sector, it’s growing at a phenomenal rate. None of the IT sector companies are able to go to banks and obtain debt capital because our banking sector has not equipped itself with the knowledge—the IT knowledge— to be able to put a value in terms of the intellectual property that the product has,” he explained.
Sri Lankan banks are mostly collateral based and have come under criticism from multiple parties, including a person no less than Central Bank Governor Ajith Nivard Cabraal, as he requested all the banks to be non-collateral based in supporting the small and medium enterprises (SMEs) and business start-ups.
Citing an example Peiris said a local IT company receiving a US $ 46 million valuation in the United States, predominantly based on its intellectual property, would find it difficult to raise funding from a local bank, as local banks may not perceive that value in the company, which had about 200 employees.
On the contrary, the banks in Singapore are equipped with the expertise to identify and measure the intangible value of the companies to serve those segments.
Therefore, he urged it was high time the Lankan banks to enhance their knowledge on the emerging industries where less physical assets are seen and continuously set benchmarks with the regional best practices to remain competitive.This is crucial as the Lankan banking sector is facing tough times ahead with falling return on equity, as the net interest margins are falling under the current low interest rate regime.Stax Inc. Sri Lanka unit is celebrating its 10th anniversary in the domestic market and is scaling up its operations betting on the growing Lankan economy.Stax Inc. has offices in Boston, Chicago and New York and is competing with the global big three: BCG, Bain & Company and Mckinsey.
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