With the acquisition of Colombo Trust Finance PLC (CTF) in September, Dialog Axiata PLC has sent a strong signal to the Lankan banks and finance companies that they should be ready to face their traditional brick-and-mortar business models being severely challenged during the next 5 to 10-year period.
After acquiring 80.34 percent of CTF, Dialog said in its mandatory offer document, which offered the balance 19.66 percent shareholders the choice to sell at Rs.28.70 a share, the new management would significantly curtail its in-branch lending and deposit portfolios to open room for digital financial services.
“The offeror (Dialog) expects to utilize the existing fixed assets of Colombo Trust Finance and where required would make investments in technology in order to facilitate business operations under digital financial services.
However, Dialog does not intend to continue with existing product portfolio offered by CTF and plans to significantly curtail and restructure the existing loan portfolio and deposits”, the document said adding that the employees would be retained. CTF had a loan book of little above Rs.1.1 billion and a deposit base of Rs.601 million by the end of June 30, 2017.
Dialog will run the company as a standalone business entity managed independently under the management appointed by them.
Dialog, can command the largest market in the financial services industry in Sri Lanka when its advanced fintech enables its 11.8 million subscribers to deposit, transfer, withdraw and apply for loans or an insurance policies through hand-held devices.
Currently eZ Cash— Dialog’s mobile payment service and the country’s first— allows its users to send or receive money from one mobile phone user to another.
In its 5th year in operation, eZ Cash has secured over 2.8 million mobile payment subscribers from across Etisalat, Hutch and Dialog mobile networks.
However, with the acquisition of CTF, Dialog can bring together advanced digital connectivity and cutting-edge fintech to deliver a multitude of financial services products, not limiting to just payments, creating true financial inclusivity in Sri Lanka. Dialog acquired 80.34 percent stake in CTF this September from Cargills Bank Limited for a sum of Rs.1.07 billion.
CTF is a licensed finance company with an asset base of Rs.1.3 billion and for the quarter ended in June 30, 2017 (1Q18), the company reported an after-tax profit of Rs.2.2 million, down 41 percent from the same period last year. Meanwhile, Dialog said that they would increase the core capital of the bank up to the regulatory minimum required. The Central Bank wants all licensed finance companies to raise its core capital base to Rs.2.5 billion from the current Rs.400 million on a staggered basis i.e. up to Rs. 1.0 billion by January 1, 2018 and by a half a billion every year until January 1, 2021. Currently the CTF’s core capital base stands at around Rs.450 million.