The country’s biggest bank is helping companies sharpen their financial acumen, proactively assessing their needs and providing financial assistance before they fall into difficulty.
Rohana Kumara, Deputy General Manager – Recovery Provinces, Business Revival & Rehabilitation at Bank of Ceylon (BOC), shares insights into the bank’s strategy to build and transform the lending culture of the banking sector and inculcate financial discipline among businesses with a bold, unconventional, yet thoughtful approach to lending. He explains why this is crucial now as Sri Lanka experiences its worst economic crisis.
With businesses fighting for survival, how is BOC responding to their needs?
We have had unprecedented challenges hit our economy back-to-back. The 2019 Easter bombings, closely followed by the Covid-19 pandemic and the unfolding debt crisis, have egregiously impacted the business environment putting the economy under stress as businesses struggle to survive and sustain employment.
The bank is always a pioneer in introducing innovative banking solutions and helping the country navigate any challenging situation. Taking the responsibility up as the premier state bank and the No.1 bank in the country, we knew we had to take on the challenge to build a safety net for our customers, especially the corporate and SME sectors, enabling the lifeblood of the economy to navigate safely through the storm. As a result, in early 2021, we developed this concept which subsequently evolved into the Business Revival and Rehabilitation Unit (BRRU) with the backing of the Business Revival and Rehabilitation Policy (BRRP) approved by the bank’s Board of Directors.
We decided to focus away from the rigorous recovery that tends to dominate most banking relationships with their clients that could force a business to shutter, lay off employees and destroy its chances of generating value in the future. We have experienced their effects before when failed business ventures send shockwaves through entire supply chains, creating a ripple effect throughout the economy.
Once we launched this initiative, we began to monitor our loan portfolio from a new perspective than our routine periodical monitoring. Instead of comfortably falling back on collateral, we endeavour to proactively screen customers with visible signs of defaulting on their loans and falling into NPA status, which could derail their reputation and prevent them from accessing the services of any other institution. Instead, the BRRU focuses on subjecting our customers to a comprehensive screening process to evaluate their genuine intentions and contribution to economic output and employment generation. We do this to effectively and efficiently identify those businesses – long before they ever encounter any cash flow difficulties – that could use our technical expertise and funding to sustain themselves through any economic crisis.
Therefore, the bank diligently and thoughtfully selects the customers it wants to serve under this initiative. Unlike the traditional recovery process, the BRRU extends its full support to continue or re-start a temporarily closed business. In this scenario, the bank is keen on the availability of the critical assets, including human resources required to operate the business without interruption, a viable business plan and a strong commitment from the customer.
As a prudent bank, we are conservative in our lending to safeguard public deposits during an economic downturn. And for that matter, we maintain a stringent lending policy and only assist those companies with credible business plans that require a temporary injection to sustain themselves. We are more focused on providing working capital to help with cash flows, the need of the hour for many businesses. Since mid2021, when we commenced this initiative, we have assisted over 30 corporate clients representing various industries, including the export sector. Together, they directly employ over 15,000 people. So far, over 90% of this portfolio of customers have already averted any cash flow crunch and are performing satisfactorily well, fully settling their commitments with us.
What are your plans to expand this initiative?
The next stage is to extend this initiative to start-ups and small and medium businesses identified by our specially trained Business Revival Officers at branch-level Business Revival Units. When the economy recovers and the environment is conducive for lending to capital build-up and business expansion, we can consider lending to these areas.
As a prudent bank, we ensure to maintain a healthy credit portfolio. As such, this service is exclusively for our customers who are almost at a stage where they have reached a certain threshold and genuinely need additional assistance. We aim to prevent good businesses from going into non-performing at any cost. If a business encounters an unforeseen undesirable situation, we will always look for genuine signs of creditworthiness, including the ‘trust’ that the customer has built with the bank over time and any possibility of recovery over time. Once we carry out the required assessment and inspection of the business, we will decide on an appropriate business revival plan and negotiate the required working capital for a short period. We will follow up with suitable technical guidance and close monitoring of their cash flows to ensure they soon generate sufficient profits.
At BOC, we firmly believe that 2023 is the year of recovery, and we are preparing our customers for the opportunities ahead. In addition, we are empowering our staff members with the required training and knowledge to better approach revival challenges confidently.
What do you hope to achieve with this innovative and proactive approach to managing your lending portfolio?
There are two objectives we are passionate about achieving through this initiative. First, we are attempting to create and transform the credit culture in Sri Lanka. From the banking perspective, we aim to encourage the industry to be proactive and not reactive. Why wait for a genuine customer with a solid business plan to be forced to default when you can intervene much sooner?
We strongly believe in sustainable banking, and our clientele is integral to our journey of sustainable growth. We look forward to ways our customers can expand their wealth and capacity that will inadvertently develop our mutual relationship with them through building loyalty and confidence. Going beyond growing our business portfolio, we wish to instil hope in the Sri Lankan community, giving them confidence in a secure future for their families and children.
Our second objective is inculcating financial discipline. By insisting on credible business plans and monitoring cash flows, we are compelling clients to manage their financial resources better, building resilience and buffers and avoiding unnecessary cash diversions. Our proven business acumen enables us to assist our customers in their decisions, avoiding pitfalls such as diverting cash flows into areas that do not add value but increase their vulnerability to economic shocks.
BOC is securing the futures of companies and the people they support. Such measures empower society to move forward confidently, generating economic value and improving social well-being and sustainability in the long run.