Jonathan Alles, Managing Director and Chief Executive of Hatton National Bank (HNB) in an interview with Mirror Business speaks about the bank’s key achievements, banking sector performance, fourth industrial revolution etc. Excerpts:
What are some of the defining achievements of HNB in the recent past?
As a bank with a history of over 130 years, and Sri Lanka’s most diversified financial services conglomerate, HNB has recorded significant accomplishments in terms of customer centricity, technological innovation, professional and operational excellence. In its journey, the bank has stood the test of time demonstrating resilience and emerged even stronger and one of its foremost achievements has been the continuation of this proud legacy.
In terms of performance, HNB’s asset book surpassed the landmark of Rs. 1 trillion in 2018, recording a CAGR (Compound Annual Growth Rate) of 16 percent over the past five years, in the face of challenging market dynamics. Despite non-conducive market conditions, we have continued to maintain a very strong CASA (Current Account and Savings Account) base which exceeded Rs. 266 billion as at end June 2019. Through our concerted efforts on operational efficiency the bank was successful in improving its cost to income ratio from 50.3 percent in 2013 to 39.5 percent as at end June 2019.
Today, HNB is one of the best capitalised banks in Sri Lanka, a position which was enhanced in 2017 by way of the largest rights issue in the country by any company. The most recent capital raising exercise by way of a Basel III compliant tier II debenture of Rs 10 billion was significantly oversubscribed and we are truly grateful to our investors for continuing to place their trust and confidence in us.
Our strong and sustainable performance, innovations, digitalisation efforts and focus on continuous improvement have won HNB continuous local and international acclaim. We have been featured over the last 3 years, among the World Top 1,000 Banks, as determined by The Banker Magazine UK.
Similarly, we were also declared Best Bank in Sri Lanka in 2019 by Euromoney Magazine and as the ‘Strongest Bank in Sri Lanka by balance sheet’ at the Asian Banker 500 Largest and Strongest Banks Recognition Ceremony in London. Most recently, HNB was also recognised amongst the ‘Top 10 Most Admired companies in Sri Lanka 2019 by the International Chamber of Commerce Sri Lanka and CIMA for the second time.
Such outstanding performances are made possible by significant investments in learning, skills development and team building – factors which also helped HNB to secure the Top Workplaces in Asia award at the Asia Corporate Excellence & Sustainability Awards (ACES) 2019. All of these achievements were as a result of the deep level of commitment and understanding that exists throughout the HATNA family in terms of achieving our wider vision of becoming the undisputed leader in Sri Lankan banking.
Having realised our broader goals and targets in 2017, we formulated an ambitious vision 2020 to lay the foundation for a future ready bank. This transformational journey that we have embarked upon in 2018, is the largest ever project in the history of HNB, and encompasses sustainable growth, customer experience, technology enablement, digitalisation and people transformation.
Entering the final quarter of 2019, how well has this vision been translated to reality?
Over the past year, we have progressed steadily in our journey, and have made great strides in many fronts. In May 2019, with the launch of HNB SOLO - our proprietary payment app, HNB was able to advance the development of the entire domestic cashless payments ecosystem. SOLO provides users with complete freedom and flexibility in digital payments. This represents another major step forward in our on-going digitalisation efforts and we plan to add further value to the app through more features and functionality moving forward.
The bank has also progressed well in terms of technology development, and is currently in the process of upgrading the core banking system as well as the loan origination system. Considering the importance of information security in the current context, HNB is also in the verge of launching a data loss prevention solution.
During the year, HNB launched a new business operating model creating separate verticals responsible for key areas. Consequently, sales & service and credit underwriting functions have been segregated, with the Chief Credit Officer being responsible for credit underwriting. The accountability and the specialisation created through this effort is expected to drive greater process efficiency as well as better credit quality.
With our staff being at the heart of our business, we believe in enhancing the overall employee experience and several initiatives are underway with regard to human capital. The team remains engaged and committed to drive the transformational change and are working on many more initiatives at present.
What are some of the factors that contribute towards being considered among the strongest and most admired corporates in Sri Lanka?
HNB has consistently been ranked at the pinnacle of the banking and corporate sector and this is due in no small part to our stable performance. The sustainable growth and the resilience demonstrated over the years by the bank, the strong deposit base as well as the capital position, sound profitability and persistent focus on improving operational efficiency and credit quality are some of the key factors that exhibit the strength of HNB.
In addition to our overall financial performance, our ability to adapt to rapidly evolving market dynamics by introducing innovative products and services; partnering the progress of millions of Sri Lankans for over 130 years; the digital transformation journey that we had launched providing more choice and convenience to customers; our continuous efforts in making HNB a best in class place to work; authentic commitment to good governance and the strong governance structures in place; ethical business practices and a holistic approach to sustainability that goes beyond financial results to deliver sustainable value across the entire stakeholder community have been the key contributors in earning us the recognition of most admired corporates in Sri Lanka.
How has the banking sector been performing in the face of challenging macroeconomic conditions?
It has certainly been a challenging period for Sri Lanka and the banking sector. At a macro level, GDP growth and loan growth have been sluggish. Adverse weather conditions experienced for over four seasons, delays in settlement encountered in the construction sector, high interest rates that prevailed as well as the overall stressed market conditions have led to higher sector wide NPA’s for our industry. Heavy taxation - exacerbated by introduction of Debt Repayment Levy has increased the total effective tax to over 55%. The introduction of higher capital requirements under BASEL III standard and significantly higher credit costs with the introduction of IFRS 9 have all played a part in negatively impacting the banking sector profits.
Although, Central Bank has directed rate cuts in order to drive credit growth and the economy, we believe that there would be a lag effect due to the uncertainties prevalent with the two upcoming elections.
In that context, I would say that the performance of large banks like HNB has helped showcase our resilience – both as an organisation and a sector – and while these conditions are not expected to ease in the near future, we remain confident in our fundamentals.
What are some of the key strategies which the banking sector needs to adopt in order to effectively respond to these challenges?
In the current context where profitability of the banking sector is being impacted negatively in multiple ways, it’s clear that there needs be a sector-wide focus on improving the bottom line. Considering that the margins are coming under further pressure with the rate cuts announced, the banks may have to relook at their business models in order to remain profitable. Implementing sustainable solutions to improve asset quality, effectively recover overdues and thereby manage impairment costs is of paramount importance. Further in this difficult backdrop, the banks need to focus on realising cost efficiencies.
Given that the internal capital generation is being hindered constraining the capacity to grow, there would also be opportunities for industry consolidation.
Do you think that current attitudes over the disruptive potential of the fourth industrial revolution are overblown or underestimated?
From a Sri Lankan perspective, there are many obstacles which we face in shifting to a 4.0 paradigm, but we can say with certainty that its disruptive potential is not overblown. Relative to our regional peers, Sri Lanka is still lagging behind drastically in terms of adoption of digital banking. While this places us at a natural disadvantage, it is also an opportunity to learn from the experiences of our regional peers. That knowledge combined with the very nature of new era of banking means that when the foundations for 4.0 are in place, it will only require a few strategic interventions in order to leapfrog the competition in development.
Banks that fail to take these dynamics into account run the risk of becoming redundant. In the near future, partnerships and collaborations with fintechs and the utilisation of AI, robotics and advancements in block chain technology will play a central role in our industry, and very quickly proliferate to impact every aspect of daily life. This will be similar to the disruptions called by smart phone technology, but on an even
That being said, the focus on digital should not come at the expense of deviating from core banking tenets of customer service, operational efficiency, etc. HNB’s ultimate goal is to develop technology to drive best in class processes, digital channels and digital solutions which offer unparalleled levels of service, convenience and security of transactions that average Sri Lankan customers have hitherto not experienced.
What are some of the key opportunities you see for HNB?
As we all know Sri Lanka has been going through a phase of sluggish economic growth. Nevertheless, we strongly believe in the growth prospects and the economic revival of Sri Lanka irrespective of the outcome of the up-coming elections. The growth in the medium to long term is expected to be driven by the development in sectors such as exports, IT/KPO/BPO, hospitality, health, education,
construction, apparel etc. SMEs, being an integral part of these sectors, would undoubtedly play a key role in the resurgence of our economy.
As I mentioned earlier, HNB is currently on a transformational journey and would be fully geared to capture the opportunities arising in all segments of the market. We would capitalise on our unparalleled capability and expertise in serving corporates, mid corporates, SMEs, and micro entrepreneurs on the commercial side and our comprehensive product and service offering for individuals from new borns to senior citizens as well as our private banking solution for high net-worth individuals in seizing these opportunities.
Furthermore, from a group perspective, we strongly believe that the economic revival will drive capital markets as well the insurance industry. Thus, we remain positive on the growth opportunities for HNB group and as always are committed to partner the progress of our nation.