With its Corporate Banking surpassing a ‘Lending’ portfolio of Rs. 250 billion end 2015, Hatton National Bank (HNB) has notched another significant milestone as the financial institution with the largest portfolio in this sector, amongst all private sector commercial banks, both local and foreign, in Sri Lanka.
Emerging as the leader in the Corporate Banking business, 2015 was a record year for HNB in this customer segment, with its ‘Lending’ book growing by an impressive Rs. 60 billion, the largest lending deployed by any corporate banking business in the market during the year. This lending growth signified a 30 percent increase over the previous year’s portfolio balance. Over the last 18 months, Corporate Banking has grown its ‘Lending’ portfolio by Rs. 100 billion.
Contributory factors to the ‘Lending’ growth was HNB’s success in deepening its existing corporate client relationships and acquiring over 100 ‘New to Bank’ accounts with a lending potential of more than Rs. 250 million per customer, said Ruwan Manatunga, Deputy General Manager (DGM), Corporate Banking. At HNB, the minimum lending exposure to qualify as a corporate banking relationship customer is Rs. 250 million.
He further said that the service quality and skills depth of its Corporate Relationship Management (CRM) teams, was the differentiating solution proposition offered by HNB to its corporate customers. Building strong customer relationships is priority to the Bank and the best in class service offering has enabled HNB to steer its Corporate Banking business to new heights.
The Bank’s CRM teams lead the market in providing world class client solutions through a seamless service offering; partnering client businesses to help realize their full potential by creating value and offering strategic support. Additionally, product teams such as Treasury and International Trade Finance, structure client solutions that are best in the market, which complements the effort to position HNB’s Corporate Banking business to be the preferred partner of its corporate customer base.
“We are proud of these teams and will continue to make significant investments to further strengthen them, a commitment to the business community of the Bank’s support to provide a world class service experience”, Manatunga stressed.
Q: What is the position of Corporate Banking Non Performing Assets (NPAs)?
It is at record low levels – below 1.25 percent, which can be considered very healthy in terms of the industry ratio.
Q: On NPAs, what is the general average in the Corporate Banking industry?
There are readings that go up to 3% in this sector.
Q: HNB has deployed Corporate Banking ‘Lending’ assets overseas for the first time. Can you explain?
Yes, we have made deployments in countries such as Cambodia, Bangladesh, Uganda and Maldives. We will continue to pursue such overseas opportunities in the coming months and years.
With the prevailing challenges in the internal and external environments, corporate customers seem to take a ‘wait and see’ approach in making capacity investments until there is more clarity in the country’s fiscal and monetary policies. Hence, lending opportunities are limited in the current market.
In this backdrop, HNB found it important to diversify its lending assets overseas. This was a good opportunity to expand and diversify our ‘Lending’ book and the profitability margins are also attractive.
HNB is keen on investing in an equity holding overseas and these ‘Lendings’ may pave the way to such opportunities in the future. We will continue to look for good lending businesses both in Sri Lanka as well as overseas.
HNB also plays a significant role to develop the country’s debt capital market by investing heavily in listed corporate bonds. The portfolio is one of the largest and is well over Rs. 15 billion.
In 2015, Corporate Banking set up a “Mid Market Enterprise Group”, with dedicated relationship management teams to focus on a market segment, which until recently received limited focus. This customer segment, that focuses on customers with lending potential between Rs. 250 million to Rs. 500 million, consists of clients that have outgrown the status as a SME, and hence, now require more sophistication in their banking products and services.
Q: Can you elaborate on HNB’s focus on Project Financing solutions?
We lead the market in delivering Project Financing solutions for our corporates to meet their strategic business expansion goals. This best in class Project Financing team has an unparalleled track record of structuring financing solutions for both domestic and cross border deals to suit the specific requirements of our customers.
The Bank’s Project Financing business is a total service offering ranging from origination and arrangement, to underwriting and syndication of buy-outs and corporate acquisitions. The Project Financing team has also played a lead role in providing financing solutions for infrastructure projects in the areas of Wind Power, Solar Power, Hydro Power, Water Purification, Healthcare, Education, Tourism, Highways and Bridges etc. The team’s deep understanding of specialized markets knowledge also enables it to support clients, across all sectors.
Q: Is there is priority on financing infrastructure development?
Yes, HNB plays a key role in supporting the country’s infrastructure development needs. We have an ongoing lending portfolio of over Rs. 75 billion and are committed to further supporting this very important sector.
Q: What are the immediate challenges facing the Corporate Banking business?
The increasing cost in mobilizing deposits especially over the last three months have had a dampening impact in deploying ‘Lending’ assets profitably. Lending opportunities are also limited as corporates adopt a ‘wait and see’ approach. The second half of the year will be favorable if FDI flows strengthen, GSP Plus materialises and there is further growth in tourism especially in the premium segments.
To achieve the country’s full growth potential, Sri Lanka must be positioned to be the gateway to India similar to what Hong Kong is to China. In this regard, concerted efforts in making structural changes to the economy as well as policy formulation needs to be made at the earliest to attract FDIs especially into manufacturing, agriculture, tourism, transshipment, financial services and infrastructure sectors.
Initiatives to drive the country’s economic growth and social prosperity including challenges, should be regularly articulated to both local and overseas business communities. This engagement with investors is needed to manage their expectations and ensure their commitments to the country are secured.
The management of local interest rates, exchange rates and taxes should be well thought through so as to compliment greater private sector and foreign participation in the economy. Also important is maintaining the country’s external and internal debt exposures.
Going forward, HNB and other local banks will play a dominant role in the banking arena, especially in corporate banking, which until recently was dominated by foreign banks. With the anticipated growth in the country’s economy in the coming years, there will also be greater support by the banks to the SME businesses, which are, in any economy a major contributor to a country’s growth story.
We also foresee a significant migration of customer transactions from branches to electronic channels, and banks over the next few years will invest more in ATMs, Internet, mobile and credit card business rather than in brick and mortar. The country’s banking landscape is crowded with too many commercial banks, and it is inevitable, that there will be consolidation taking place in the near future.
Q: Can you outline some of the key funding transactions concluded recently that is a testament to HNB’s support to the corporate business community?
HNB has committed its balance sheet to support corporate customers across all key economic sectors of the country, and amongst others a few north worthy transactions that the Bank is proud to be associated with are; USD 100 million for JKH’s Waterfront Project, USD 18 million for Hela Clothing’s acquisition of Foundation Garments, Rs. 6 billion for Softlogic Group’s acquisition of Odel, Rs. 2 billion for Laugfs’ Gas acquisition investment in a Bangladesh LP Gas storage and distribution operation and Rs. 1.5 billion for ACCESS Group’s acquisition of Nine Wells Hospital.
Q: Is the development of a new state-of-the-art Electronic Banking platform ion the cards?
That’s right, the objective is to better support both cash flow management and international trade needs of the Bank’s corporate customers through a state-of-the-art electronic banking platform. This is a testament to the Bank’s commitment to provide the best in the market product solutions. This banking platform, to be launched in mid 2016, will be the first of its kind amongst local banks and be on par with electronic banking platforms of all international banks.
Q: What was HNB’s investment on the proposed platform?
We have invested US$ 4 million. Given the Bank’s wide footprint in Sri Lanka, following the launch of this end-to-end electronic banking platform, HNB will be well positioned to compete with multinational banks to win over cash flows of our corporate customers. Apart from the profitability factor, this investment will further support the Bank to maintain its leadership position in the market by enabling HNB to further add value to our corporate customer relationships.
Q: How would you describe the progress of ‘Al Najah’, HNB’s Islamic Banking solution?
The brand has, over the past few years, grown to be the preferred Islamic Banking institution in the market. The strong and dedicated team that is well experienced and competent in Shariah rules and regulations offers speedy solutions to this segment of customers across all 250 branches of the Bank.
This business in 2015 grew its asset base by over 100 percent, a record achievement.
To conclude, Manatunga articulated that HNB with its rich heritage touches the lives of almost every single person in Sri Lanka. With 250 branches and 4,500 staff, the Bank is an integral part of the country’s economy and society, supporting and creating value not only to the very large corporates and high net worth individuals, but also to the vulnerable SME and micro finance businesses and the not so privileged members of our society, to shape a better life for themselves, their communities and the country as a whole.