Sri Lankan banks and businesses should be dynamic and adapt to the existing environment which is here to stay despite any political changes, according to a head of a leading Sri Lankan bank.
“Overall in the medium and long term, we believe that the Sri Lankan businesses as well as the banking industry should prepare themselves. Should restructure and reorganize to adapt to this changing environment… of low interest rates and fairly stable exchange rates,” Hatton National Bank (HNB) Managing Director/CEO Jonathan Alles said. This correlates with the sentiments expressed by Central Bank Governor Arjuna Mahendran as well.
According to Alles, i nterest rates may marginally rise in the next two quarters but the impact would be insignificant. In December, the average lending rates fell to an all-time low 12 percent, while the average deposit rates fell to 6 percent, according to reports. HNB’s net interest margin, which had been 6 percent in 2010, had fallen to 5.4 percent in 2014 and Alles noted that banks would have to work around 4-5 percent net interest margins going forward.
He said that banks could only achieve this by better cost management and operations, especially by integrating digital services in a well-thought out blend with traditional banking, so that staff could be freed up to pursue sales and gain a greater market share.
Alles also projected increased personal banking and credit card usage due to the increase in disposable income of the public.He further added that insurance products could also be provided in a more attractive manner with these services.“We see insurance as a virgin territory, with a lot of opportunity to grow and a lot of new product development that needs to take place; the ability to package and bundle products with banking and offer them as very useful cross sell tools within our banking services portfolio.”
Meanwhile, he said that macroeconomic fundamentals had not deteriorated in the face of the political situation. “Elections came, elections went. A new president has come in. Another election is around the corner. So, some of us might think that things have slowed down a bit. Be that may; we are reasonably bullish, we are quietly optimistic of the economy itself. At a macro level, we think the status quo will continue.”He said some jitters were experienced following the presidential elections and the interim budget, with HNB’s credit growth for January and February falling to just above 15 percent, from over 20 percent in December.
Other leading private sector banks, including Commercial Bank and Sampath Bank too had seen nearly 20 percent credit growth in December, while the industry averaged 8 percent.Alles said that the intervention tactics of the interim budget could stunt growth of some companies, affect investor confidence and company ratings but that is necessary to ensure social equality.
However, he said that transparency and good governance would more than make up in return.“This gives us great opportunities. Many complain that the West is going through a downturn but they won’t stay like that forever. When they are ready to purchase, we must be able to go out there and sell.”