Commercial Bank Chairman Dinesh Weerakkody in a wide-ranging interview talks about the opportunities and challenges for Commercial Bank and the financial sector in general. Weerakkody is also a Director of many other listed and un-listed companies. Following are excerpts:
Q: 2013 was a challenging year for all banks with PAT down for most banks. How would you describe Commercial Bank’s performance in 2013?
A: Commercial Bank turned in a strong performance in 2013. Total assets crossed the Rs. 600 billion mark and reached Rs. 607 billion, reflecting a growth of 18%. Deposits from customers and loans and advances grew by 15% and 12% to reach Rs. 451 billion and Rs. 418 billion respectively. Net interest income and non-fund based income recorded reasonable growth in line with the growth in business volumes and net profit for the year growing by 4.9% to reach Rs. 10.573 billion further reinforcing our pre-eminent position as the largest and the most profitable private sector bank. We continue to be the only Sri Lankan private sector bank to cross the 10 Billion PAT both in 2012 and 2013, and also to be ranked among the World’s Top 1000 Banks. We were also No. 2 in the Business Today, all-sector ranking in 2013.
Q: What is the foundation for this strong performance?
A: I would say the passion and contribution of all our employees, our loyal and valued customer base and all our valued partners, both state and private. To give you a helicopter view, organisations win by creating a competitive advantage, which is doing something unique that competitors cannot easily copy and that customers’ value. The competitive advantage comes from the people in the organisation, the culture and finally leadership.
Q: With competition intensifying what is Com Bank doing to stay ahead of competition?
A: In a nutshell, putting innovation to the spotlight, increasing productivity, delivering great experiences across all customer touch points. To elaborate, we will continue to explore new markets where we can expand our remittance business. Building on our strength in technology will enable us to realize new levels of cost-efficiency while dramatically improving the delivery of products and 24/7 customer services. We hope to widen the scope of our fee based services and our business advisory. We will continue to expand our regional presence into markets that historically have been underserved, while at the same time strengthening our valuable existing customer networks in Sri Lanka, Bangladesh and the Middle East.
Q: Internet banking is changing the way service is getting delivered, how is Commercial Bank responding to this?
A: Commercial Bank has one of the best Retail Internet Banking Portals in Sri Lanka. It supports almost every type of financial transaction, incorporates advanced security features, and provides a very pleasant user experience. At present, we have more than 100,000 users. In the coming year we intend replicating our product leadership to Corporate Internet Banking, giving our customers the flexibility of anywhere, anytime banking.
Q: What are some of the new features Commercial Bank planning in the area of mobile banking?
A: Commercial Bank has taken a measured approach to developing this channel. From the early days of SMS Banking almost a decade ago, through to the launch of the first Tri-lingual Mobile Banking system in Sri Lanka in 2011, Commercial Bank now offers applications using WAP, USSD, iPhone, and Android. This approach has allowed us to provide ‘fresh’ user experiences as the underlying telecommunications and handset technology has evolved with the result that we have more than 80,000 customers using this channel. In the months to come we will expand our support for person-to-person mobile payments and also look at how we can incorporate ‘lifestyle’ content to provide a rich user experience.
Q: What plans are in the pipeline to increase efficiency and delivery of service in 2014?
A: We have several centralisation projects in the pipeline that will enhance the experience at our customer touch points. The focus will be on reducing the turnaround time for serving our customers. Our Loan Origination System has been a big success not only with streamlining the loan approval process but also to free time at the counter to improve service delivery and customer acquisition.
Q: Do you as a bank leverage data analytics to deliver greater revenue per customer and value for customers?
A: With competition intensifying we need to serve our existing customers even better by deepening existing relationships and by adding new customers. This requires us to analyse how our customers use our products and services, and try to identify how we can improve their experience. This analysis also needs to determine what products and services we are not offering our customers as these are clearly lost revenue opportunities. Therefore effective cross-sell strategies are critical to improve revenue per customer and to do that banks need to know their customers at a deeper level for cross selling across segments.
Q: What is the bank’s strategy for employee development?
Q: Moving on, your views on the proposed Central Bank road map for consolidation?
A: The consolidation of financial institutions in my view will be beneficial for the stability of the financial sector in the long term and for the country. Consolidation will enhance the size of the banks and rev up their ability to source oversees borrowing and risk taking capacity to enable private banks to participate in large state and private sector projects to a greater degree than at present and derive scale benefits with regard to functioning costs and finally deliver greater value to all stakeholders.
Q: Are there Lessons that we can borrow from other countries?
A: There are many examples of financial sector consolidation initiatives carried out in countries such as Malaysia and Singapore. Especially after the Asian financial crisis there was a big push to merge weak financial institutions with strong institutions. In Malaysia for example, impaired assets of the weak institutions were moved out to be managed separately and financial and technical assistance was provided for recapitalisation of undercapitalised financial institutions. In general, acquisitions worked faster and the integration was not that messy.
Q: Overall what more is required to ensure the Central Bank consolidation Road map deliver value to all stakeholders?
A: As I said before consolidation is a good thing for the industry. By creating an enabling environment it can encourage consolidation and also help to create a very strong financial sector. However, setting and meeting deadlines set for the consolidation could be a challenge for the industry. However, voluntary consolidation of business institutions is a normal business. When businesses go into such consolidation voluntarily, they look for synergy and to protect their stakeholder interests and would not join in any consolidation unless there is a clear business case for M&A. Then, all the stakeholders can expect to get the best out of M&A moves. The timelines given for consolidation could be made bit more flexible to give more space to ensure that informed and robust decisions are taken. Certainly there needs to be timelines that must be met. The other area is M&A advisory, which is crucial for sound valuations and to manage the culture integration.
Q: People issues are one of the biggest challenges in a merger and often not given adequate attention. Your thoughts?
A: In a firm it is HR’s job to find recruit, train and develop, engage workers, resolve conflict, and keep an eye on productivity. However in most M&A deals HR professionals usually have little involvement at the pre-deal stage, which goes a long way to explaining why people, organisation and culture issues tend to get overlooked, often the members of the deal team have no skills to assess the HR soft issues that are so critical for integration. A merger has a profound effect on the people of both companies, and managing this impact is an important part of managing a successful transition to a unified leadership, business model, and organisation. By recognising and responding appropriately to the impact of the deal on each employee, HR managers can set the tone for long-term success or failure of the new company. In the pre-deal stage, it is the organisational design that needs focus, particularly assessing and selecting the right leadership talent. Remuneration also plays a key role and needs to be considered from a multiple perspective to identify the impact on employer, employee, and cost. Maintaining and building morale and loyalty, treating people fairly are the other areas in this stage that plays a significant role. In the post-deal stage, it is the responsibility of HR to plan and manage the integration process to ensure a successful integration, to do that effectively, HR needs to manage employee communication, manage the change and the new culture, focus on talent retention and selection, integrate the HR functions, integrate pay and performance and also the Leadership development. By managing this effectively the new entity would be able to engage employees in productive work and keep their motivation/commitment levels at the highest possible levels to achieve the desired goals and also retain the key talent needed to manage the merged entity.
Q: What is your outlook for 2014 and beyond?
A: With interest rates expected to remain low, we anticipate a corresponding rise in demand for credit in the private sector. This renewed credit activity is expected to stimulate the entire Sri Lankan economy, and with Sri Lanka poised to become a regional and an international services hub, there would be new opportunities for public-private partnerships. A continued low-interest environment may also spark growth in the property market, with an increase in both commercial real estate financing and consumer housing loans. We also expect to see new life and general buoyancy in capital markets.
Q: Finally, in terms of the banking act direction 11 you will be completing your nine-year term in July. How practical is this given the shortage of competent and the need for independent Bank Directors?
A: This is good practice and in line with some of other good governance codes applicable in many developed markets. Term limits provide a painless way for people to retire gracefully and automatically. Admittedly, this is a pragmatic argument—and the downside is that a director who is doing a fantastic job may get forced out early. My view is term limits reduce the likelihood that a few individuals dominate board decisions forever and they also help to provide periodic injections of new energy and ideas. Then on the subject of skills and competence of Bank Directors, the Central Bank has been investing time and money to build the required capability and the bench strength in the banking sector. However, there is no debate bank Boards require people with varied skill sets, tech-savvy and people who are independent in their thinking to ensure the Board has the breadth and depth of skills and experience to enable adequate oversight of the bank business now and in the future.
(The writer is a graduate in Accounting and Finance from the University of Leicester UK and is engaged in financial/investment advisory in Sri Lanka and the UK)
By Shanuka Tissera
Q: 2013 was a challenging year for all banks with PAT down for most banks. How would you describe Commercial Bank’s performance in 2013?
A: Commercial Bank turned in a strong performance in 2013. Total assets crossed the Rs. 600 billion mark and reached Rs. 607 billion, reflecting a growth of 18%. Deposits from customers and loans and advances grew by 15% and 12% to reach Rs. 451 billion and Rs. 418 billion respectively. Net interest income and non-fund based income recorded reasonable growth in line with the growth in business volumes and net profit for the year growing by 4.9% to reach Rs. 10.573 billion further reinforcing our pre-eminent position as the largest and the most profitable private sector bank. We continue to be the only Sri Lankan private sector bank to cross the 10 Billion PAT both in 2012 and 2013, and also to be ranked among the World’s Top 1000 Banks. We were also No. 2 in the Business Today, all-sector ranking in 2013.
Q: What is the foundation for this strong performance?
A: I would say the passion and contribution of all our employees, our loyal and valued customer base and all our valued partners, both state and private. To give you a helicopter view, organisations win by creating a competitive advantage, which is doing something unique that competitors cannot easily copy and that customers’ value. The competitive advantage comes from the people in the organisation, the culture and finally leadership.
Q: With competition intensifying what is Com Bank doing to stay ahead of competition?
A: In a nutshell, putting innovation to the spotlight, increasing productivity, delivering great experiences across all customer touch points. To elaborate, we will continue to explore new markets where we can expand our remittance business. Building on our strength in technology will enable us to realize new levels of cost-efficiency while dramatically improving the delivery of products and 24/7 customer services. We hope to widen the scope of our fee based services and our business advisory. We will continue to expand our regional presence into markets that historically have been underserved, while at the same time strengthening our valuable existing customer networks in Sri Lanka, Bangladesh and the Middle East.
Q: Internet banking is changing the way service is getting delivered, how is Commercial Bank responding to this?
A: Commercial Bank has one of the best Retail Internet Banking Portals in Sri Lanka. It supports almost every type of financial transaction, incorporates advanced security features, and provides a very pleasant user experience. At present, we have more than 100,000 users. In the coming year we intend replicating our product leadership to Corporate Internet Banking, giving our customers the flexibility of anywhere, anytime banking.
Q: What are some of the new features Commercial Bank planning in the area of mobile banking?
A: Commercial Bank has taken a measured approach to developing this channel. From the early days of SMS Banking almost a decade ago, through to the launch of the first Tri-lingual Mobile Banking system in Sri Lanka in 2011, Commercial Bank now offers applications using WAP, USSD, iPhone, and Android. This approach has allowed us to provide ‘fresh’ user experiences as the underlying telecommunications and handset technology has evolved with the result that we have more than 80,000 customers using this channel. In the months to come we will expand our support for person-to-person mobile payments and also look at how we can incorporate ‘lifestyle’ content to provide a rich user experience.
Q: What plans are in the pipeline to increase efficiency and delivery of service in 2014?
A: We have several centralisation projects in the pipeline that will enhance the experience at our customer touch points. The focus will be on reducing the turnaround time for serving our customers. Our Loan Origination System has been a big success not only with streamlining the loan approval process but also to free time at the counter to improve service delivery and customer acquisition.
Q: Do you as a bank leverage data analytics to deliver greater revenue per customer and value for customers?
A: With competition intensifying we need to serve our existing customers even better by deepening existing relationships and by adding new customers. This requires us to analyse how our customers use our products and services, and try to identify how we can improve their experience. This analysis also needs to determine what products and services we are not offering our customers as these are clearly lost revenue opportunities. Therefore effective cross-sell strategies are critical to improve revenue per customer and to do that banks need to know their customers at a deeper level for cross selling across segments.
Q: What is the bank’s strategy for employee development?
A: Our strategy is to deepen the bank’s talent pool by investing in training and development, and by fostering their leadership abilities to build a leadership brand that reflects the expectations of the customers outside the bank.
Q: Moving on, your views on the proposed Central Bank road map for consolidation?
A: The consolidation of financial institutions in my view will be beneficial for the stability of the financial sector in the long term and for the country. Consolidation will enhance the size of the banks and rev up their ability to source oversees borrowing and risk taking capacity to enable private banks to participate in large state and private sector projects to a greater degree than at present and derive scale benefits with regard to functioning costs and finally deliver greater value to all stakeholders.
Q: Are there Lessons that we can borrow from other countries?
A: There are many examples of financial sector consolidation initiatives carried out in countries such as Malaysia and Singapore. Especially after the Asian financial crisis there was a big push to merge weak financial institutions with strong institutions. In Malaysia for example, impaired assets of the weak institutions were moved out to be managed separately and financial and technical assistance was provided for recapitalisation of undercapitalised financial institutions. In general, acquisitions worked faster and the integration was not that messy.
Q: Overall what more is required to ensure the Central Bank consolidation Road map deliver value to all stakeholders?
A: As I said before consolidation is a good thing for the industry. By creating an enabling environment it can encourage consolidation and also help to create a very strong financial sector. However, setting and meeting deadlines set for the consolidation could be a challenge for the industry. However, voluntary consolidation of business institutions is a normal business. When businesses go into such consolidation voluntarily, they look for synergy and to protect their stakeholder interests and would not join in any consolidation unless there is a clear business case for M&A. Then, all the stakeholders can expect to get the best out of M&A moves. The timelines given for consolidation could be made bit more flexible to give more space to ensure that informed and robust decisions are taken. Certainly there needs to be timelines that must be met. The other area is M&A advisory, which is crucial for sound valuations and to manage the culture integration.
Q: People issues are one of the biggest challenges in a merger and often not given adequate attention. Your thoughts?
A: In a firm it is HR’s job to find recruit, train and develop, engage workers, resolve conflict, and keep an eye on productivity. However in most M&A deals HR professionals usually have little involvement at the pre-deal stage, which goes a long way to explaining why people, organisation and culture issues tend to get overlooked, often the members of the deal team have no skills to assess the HR soft issues that are so critical for integration. A merger has a profound effect on the people of both companies, and managing this impact is an important part of managing a successful transition to a unified leadership, business model, and organisation. By recognising and responding appropriately to the impact of the deal on each employee, HR managers can set the tone for long-term success or failure of the new company. In the pre-deal stage, it is the organisational design that needs focus, particularly assessing and selecting the right leadership talent. Remuneration also plays a key role and needs to be considered from a multiple perspective to identify the impact on employer, employee, and cost. Maintaining and building morale and loyalty, treating people fairly are the other areas in this stage that plays a significant role. In the post-deal stage, it is the responsibility of HR to plan and manage the integration process to ensure a successful integration, to do that effectively, HR needs to manage employee communication, manage the change and the new culture, focus on talent retention and selection, integrate the HR functions, integrate pay and performance and also the Leadership development. By managing this effectively the new entity would be able to engage employees in productive work and keep their motivation/commitment levels at the highest possible levels to achieve the desired goals and also retain the key talent needed to manage the merged entity.
Q: What is your outlook for 2014 and beyond?
A: With interest rates expected to remain low, we anticipate a corresponding rise in demand for credit in the private sector. This renewed credit activity is expected to stimulate the entire Sri Lankan economy, and with Sri Lanka poised to become a regional and an international services hub, there would be new opportunities for public-private partnerships. A continued low-interest environment may also spark growth in the property market, with an increase in both commercial real estate financing and consumer housing loans. We also expect to see new life and general buoyancy in capital markets.
Furthermore in light of the Government’s move to create an enabling environment for M&A, with a view to create larger and stronger financial institutions that are well capitalised, with strong regional presence, the banking sector would derive scale benefits with regard to operational cost and also be able to participate in large scale infrastructure projects both public and private to a greater degree than now.
Q: Finally, in terms of the banking act direction 11 you will be completing your nine-year term in July. How practical is this given the shortage of competent and the need for independent Bank Directors?
A: This is good practice and in line with some of other good governance codes applicable in many developed markets. Term limits provide a painless way for people to retire gracefully and automatically. Admittedly, this is a pragmatic argument—and the downside is that a director who is doing a fantastic job may get forced out early. My view is term limits reduce the likelihood that a few individuals dominate board decisions forever and they also help to provide periodic injections of new energy and ideas. Then on the subject of skills and competence of Bank Directors, the Central Bank has been investing time and money to build the required capability and the bench strength in the banking sector. However, there is no debate bank Boards require people with varied skill sets, tech-savvy and people who are independent in their thinking to ensure the Board has the breadth and depth of skills and experience to enable adequate oversight of the bank business now and in the future.
(The writer is a graduate in Accounting and Finance from the University of Leicester UK and is engaged in financial/investment advisory in Sri Lanka and the UK)
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