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Thursday June 20th, 2024

HNB: Unleashing the Wholesale Banking Gambit

Damith Pallewatte Deputy General Manager – Wholesale Banking Group at Hatton National Bank

The bank is empowering businesses with digital banking products and innovative solutions across corporate banking, emerging corporates and institutional banking including fi, trade finance, transactional banking, custodian and trustee services, project finance, Islamic banking, and more.

Having grown primarily within the space of retail and SME banking, Hatton National Bank (HNB) is carving out its own space in serving corporates in a more wholistic manner and is looking forward to tackling the challenges that lie ahead by digitizing its internal and external processes to facilitate ease, provide first-time in Sri Lanka services to its corporate customers, and scope out new opportunities in digital banking, explains HNB’s Damith Pallewatte, Deputy General Manager – Wholesale Banking Group.

Can you take us through HNB’s wholesale banking offering and how it makes a difference amidst a challenging environment?

Wholesale banking is a concept that is prevalent in the global banking arena and has now gained traction in Sri Lanka’s banking industry too as corporates have since become sophisticated, with top-tier international banks dominating their presence in this segment. Wholesale banking essentially encompasses four distinct segments: conventional banking covering lending and deposit products, transactional banking, investment banking, and securities. In conventional banking, relationship managers oversee loan portfolios and financing arrangements engaging with the company in facilitating their requirements. Transactional banking plays a pivotal role in the wholesale banking landscape, facilitating payments & collections, supply chain management, and international trade transactions. Investment banking, the third segment, involves supporting clients in accessing capital markets and raising investment capital. The final segment is securities, where services such as trustee and custodian arrangements are provided, along with access to various security options. These diverse services collectively define the essence of wholesale banking, which goes beyond simply managing the financing needs of a corporate.

At HNB, our wholesale banking proposition aims to uphold the true spirit and essence of wholesale banking. We have organized our decades-old corporate banking business aligned to a global wholesale banking value proposition. With three years of successful operations under our belt since the formation of HNB WBG, we have structured our offerings to cater to the unique requirements of Corporates. Sri Lanka’s corporate landscape has evolved significantly, with sophisticated corporations that are no longer traditional. Our clientele comprises primarily top-tier corporates, global financial institutions, multinationals, conglomerates, and government institutions, each with distinct and diverse requirements.

We provide our customers with comprehensive and specialized services to meet their unique needs. We offer a range of options, though not necessarily abundant, to help our clients navigate the complex business landscape with wholesale banking solutions.

In addition to conventional lending and deposits, our transactional banking services enable seamless payments & collections, efficient supply chain management, and streamlined international trade transactions. Our investment banking expertise stemming from working with our JV partner Acuity Partners extends to supporting clients in accessing capital markets, raising investment capital, and navigating complex financial transactions including M&As. As part of our securities services, we provide trusted trustee and custodian arrangements along with access to a diverse range of security options.

To discuss the segments within our wholesale banking proposition, let me begin with Corporate Banking, which encompasses traditional financing solutions. It is important to mention at the outset that our portfolio also includes a specific segment named Emerging Corporates, a segment tailored for large-sized SMEs on the cusp of transitioning towards becoming corporates. We guide these top-end and large-sized SMEs who have been categorized as emerging corporates through their delicate transformation, offering financing solutions and expertise in critical areas such as Industry best practices and process optimization etc. Currently, we are working with approximately 400 such emerging corporates across the country.

Moving on to Trade Finance, HNB boasts the largest team of trade finance specialists in the banking sector, proficient in handling various international trade transactions, including exports, imports, and multiple other types of trade facilitation. This year for the 04th time in the last five years our Trade Team has been awarded dual accolades, the Best Service Trade Finance Bank and Market Leader in Trade Finance both by the prestigious Euro Money Magazine and Asia Money Magazine. Our Transactional Banking proposition facilitates seamless customer payments & collections, with our digital solutions proving to be highly effective.

In the realm of Project Financing, HNB is actively involved in funding greenfield projects, particularly in the renewable energy sector, encompassing solar power, wind power, hydropower, biomass, and waste-to-energy conversion projects some of which are the country’s first. Our team of specialists diligently assess and monitor these projects for environmental impact, cash flow management, and return on investments (ROIs) throughout the phases of project evaluation, implementation and even upon their completion.

Custodian and Trustee Services are another unique proposition offered by HNB within the Sri Lankan market. While foreign banks have previously dominated this space, HNB now commands a substantial market share of 95% in the trustee services market and approximately 40% in the custodian market. Our custodian services manage various large funds, such as the EPF and other superannuation funds of the corporate sector and High Net Worth Individuals. Furthermore, reliable and reputed custodian and trustee services are most often a pre-requisite for international investors seeking to enter capital market transactions in Sri Lanka for which HNB acts as a forerunner.

Our Islamic banking proposition, which has been in existence for a little over a decade, holds a market share of around 20%. We integrated this product suite into our wholesale banking proposition in 2020, recognizing the increasing interest of large corporations in Sharia-based products.

Institutional Banking is another notable proposition, overseeing our relationships with financial institutions (FIs) abroad. This arm maintains strong ties with banks across Asia, the Middle East, Europe, Australia and virtually around the globe to facilitate banking transactions for our customers seeking overseas business opportunities at an affordable cost and to tap into valuable foreign investment sources.

HNB’s wholesale banking proposition presents immense opportunities for Sri Lanka’s sophisticated corporations, institutions, and conglomerates. As the landscape evolves and the requirements of these entities become increasingly complex, our wholesale banking proposition is well-equipped to provide tailored and comprehensive solutions. We take pride in our ability to deliver specialized services that align with the unique needs of our esteemed clientele. With a global outlook and a commitment to excellence, our wholesale banking proposition is poised to play a pivotal role in Sri Lanka’s banking landscape, supporting the growth and success of our valued customers.

What factors will shape the future of wholesale banking in Sri Lanka?

The recent move by Sri Lanka to seek assistance and avail itself of an emergency funding facility from the International Monetary Fund (IMF) together with impending domestic debt restructuring will influence the shaping of the Wholesale Banking requirements in the country. This will be a patch of time in which the resilience of the country’s financial system is tested. Obviously, the downward interest rate movements and stabilization of exchange rates will help regain some business momentum and will shape the corporates’ demand for banking and financing services. We anticipate investor interest from various overseas investors due to multiple reasons not only to protect geo-political interests and take advantage of our global positioning but also to aim at bold investment propositions such as the Colombo Port City Project. Whilst the immediate future over the short run will be a move on the recovery mode, the medium to long-term view one takes on the country and its potential will eventually be deciding factors shaping the future of the wholesale banking proposition too.

As we move forward, we believe economic revival is key to achieving desired growth. Hence we recognize the need to rebuild and recast our portfolio to focus on growth. As a bank that offers wholesale banking propositions, we are hopeful that an investment climate supported by stable and consistent state policies will uplift investor confidence backed by supportive regulatory frameworks, particularly in the realm of environmental, social, and governance (ESG) considerations, green finance, creating export industries etc. We are eager to aim for green investments and facilitate transactions related to achieving net zero carbon emissions which will align with our Project Finance philosophy too. We are ready to facilitate large ticket transactions, be they related to infrastructure development or private sector projects, via syndication arrangements for which we have built expertise over the years not only leading projects locally but in off-shore markets too such as Maldives and Cambodia. We also believe, taking similar examples from several far eastern countries, it is imperative the country creates large and extra-large category exporters who can attract a decent share of volume from the world market and also withstand global shocks. The entire country experienced the valuable role played by export industries over the past couple of years. Hence there should be more than average attention to building those powerful export industries within the country so that around them we can build domestic industries. Import substitution will be another key area as a country we need to focus on that will not only save the outflow of foreign currency but also support the economic revival creating additional jobs and supply chains.

We believe there will be a few new types of transactions too. Currently, our banking sector deals with various asset classes such as cash, equity, bonds, commodities etc. We have witnessed the emergence of carbon trading and digital assets as asset classes, although Sri Lanka lacks adequate regulations in these areas. We believe that a robust regulatory framework in those areas will be useful for the growth and future of wholesale banking, along with a conducive investment climate supported by government policy.

We are looking forward to the introduction of REITs to propel our trustee services business whilst foreign asset and digital asset custodians can open up notable revenue streams by providing fee-related services.

Over the past few years, there have been significant changes in the economic landscape that have negatively impacted investments and investor confidence. Long-term investors seek stability and disruptions halfway through projects can hinder future investments. We must create a favourable environment that fosters investor confidence and encourages long-term commitments.

How are you reimagining your wholesale banking strategy to open new opportunities for the bank and to benefit your clients and the overall economy?

We have structured ourselves a little differently from conventional configurations and allowed explorative risk-taking through pilot pods established by way of specialized desks within WBG. As a Domestic systemically Important Bank (D-SIB) we need to align ourselves with the growth trajectory of the country. We should prioritize areas that would contribute to a swift recovery. At the same time, we also need to upscale our valued clientele to be on par with sophistication levels compared to their regional or global competition, especially those who are involved in international trade and invested in doing business overseas. We acknowledge the creation of new industrial parks similar to existing FreeTrade Zones presenting an opportunity for us to attract investors and promote economic production through technology and skills transfers. We are actively exploring ways to leverage these industrial parks to induce productive economic activities in our country, and this is a key area of focus for us.

We are keen to explore opportunities in identified off-shore markets, especially in Japanese, Indian and Chinese market domains, where there is a notable potential for mutually beneficial investments. We believe skill and technology transfers in the areas of Agriculture and seafood processing would contribute to arresting growing concerns about food security as well.

Furthermore, we are closely examining opportunities in the digital assets ecosystem, considering our existing strength in custodian service provision. We are exploring the possibility of partnering with foreign custodians and venturing into digital custodianship to expand our offerings in this space.

In addition, we are optimistic about CPCEC considering the potential for establishing digital currency exchanges, where we can facilitate the fiat currency leg of the transaction and value storage without being exposed to risks of unknown position fluctuations. As a custodian service provider, we aim to facilitate these exchanges and offer custodial services for the digital currencies that are bought and sold. Our goal is to actively participate in the digital ecosystem and facilitate its growth, as this is an area of interest for the country subject to regulatory guidance.

How crucial are innovation and digital technology to HNB’s WBG business? Can you give examples of your recent innovations or digital transformation and their impact?

HNB, with a rich history spanning over 135 years, has primarily focused on retail and SMEs for its growth. Our investments in IT have been predominantly directed towards creating digital content for retail customers, such as our Aggregator platform “SOLO” , Digital Banking App and Internet banking services, which are tailored for retail-focused segments including small and micro businesses.

Having said that, with the formation of Wholesale Banking Group in January 2020, we have carefully analysed the digital adaption we need to introduce to our corporate and institutional clientele and crafted our Digital Road Map to make sure we give our valued customers a reason to continue to stay and grow with HNB WBG and new customers a reason to come on board to partner with us. Our digital growth strategy for wholesale banking encompasses two key aspects. Firstly, we aim to enhance external customer access through transactional banking, internet banking, and trade platforms. Secondly, we are committed to facilitating our internal customers with on-demand information, as we recognize the importance of data-driven decision-making and process automation. Robotic Process Automation (RPAs) has been implemented not only to increase the efficiency of processes but also to direct human talent to much more value-adding activities. By equipping our people with digital tools, we aim to save time, increase efficiency, improve convenience, and eliminate duplicate work.

We were the first to launch Corporate Open API Banking targeting cross-border remittances and settlement houses, especially during the pandemic enabling them to send money from any part of the world to the local beneficiaries in real-time. This resulted in a value proposition of its own for corporates who are into cross-border remittances/exchange houses. Thus far since its launch in October 2021, we have concluded over a million transactions worth over LKR150Bn successfully We have recently launched our state-of-the-art digital transaction banking platform, HNBTxB (www. hnbtxb.com), which aims to provide superior corporate banking experiences to all our clients. The system was launched on 06th April 2023 and we plan to roll this out to all our customers and migrate them to the new platform over the next 6-12 months. This system will not only facilitate seamless transaction execution with secure user authentication but also enables customers to integrate payments to receivables to supply chain management based on the varied needs of corporates. It can process all types of local and cross-border payments and also statutory payments of Customs and IRD. We believe the Corporate Internet Banking platform “Digital Compass” coming together with HNB TxB will prove to be userfriendly and will completely revamp the existing capabilities. As phase two of this project, we will introduce a digital platform to perform Trade related transactions where corporates can do their Documentary Credit and related transactions from the comfort of their offices. Moreover, we are extensively working on creating an eco-system to facilitate a cost-effective and secure Block Chain based trade transactions platform too.

Furthermore, we are envisaging providing our relationship managers with handheld peripheral devices to access information on demand. Currently, our credit approval proposals are paperless, as our entire credit approval process has gone digital. However, we aspire to take our digital transformation one step further with our internal customers, with cutting-edge technology. Shortly, we anticipate introducing a workflow system to streamline trade transactions by digitizing the approval, evaluation, and compliance processes. This will not only enhance efficiency but also pave the way for a comprehensive digital transition for internal customers.