Dimantha Seneviratne, Chief Executive of NDB Bank, a leading listed bank in Sri Lanka, discusses the economic challenges and their impact on businesses and the banking sector and NDB Bank’s customer-centric, tech-driven strategy towards becoming a catalyst for stability and growth. He begins by sharing insights into the bank’s outlook for the economy:
At this juncture, the outlook is dependent on several factors, primarily the level of assistance we would receive from the IMF and the timing. IMF assistance is imperative to build the confidence of the external sectors and counterparties in restarting credit facilities to Sri Lanka, a prerequisite for international trade. While the economy has posted a strong and consistent export performance, it is noteworthy that according to data published by CBSL, the growth is more pricedriven than volume-driven. Without an increase in volume, most entities would not be able to sustain operations as volumes might get concentrated around a few players.
The need for fiscal consolidation and increasing government revenue is crucial for getting the economy back on the rails. However, lower business volumes driven by high interest rates and inflation will make stimulating the economy whilst keeping inflation at bay an arduous balancing act. We believe the economy will shrink further before it starts growing, but the timing depends on the political will to make the tough decisions.
How do you see the unfolding economic crisis impacting the banking sector? There are challenges around maintaining adequate capital buffers and liquidity, containing NPLs and generating growth amidst rising inflation and a falling currency. What factors will shape the banking sector in the months, or the year or two, ahead?
The banking sector is the nerve centre of the economy. While the current situation impacts every industry and economic agent, the banking sector bears a heavier burden arising from its disproportionate responsibility to ensure that the economy keeps ticking and eventually recovers. Banks confront a challenging situation and have a precarious balancing act to execute.
However, the banking sector had been building capital reserves, called the capital conservation buffer, just for times like these. The CBSL has now allowed banks to draw down on these buffers to 2.50% should the need arise, and this will help the sector manage the impact on capital mainly stemming from the higher impairment provisions the banks would have to make for ISBs and credit risk. The higher interest rates driven by inflationary pressures will impact smaller companies which would require help to restructure their debt to more sustainable levels. As the economy settles at a lower level determined by its balance of payments position, the availability of capital will determine how much the banking sector can grow.
I would say that the sector will seek to consolidate its position in the near term rather than seek growth. Sustaining and assisting its customers would take centre stage. At the same time, taking steps to conserve and generate equity internally would be critical. Hence increase in efficiencies and cost management would be crucial to the sector. Increased digitization internally and externally, and internal organizational restructuring for newer ways of working will see a more agile and lean banking sector emerge.
How is NDB Bank positioned to confront the challenges and generate growth?
NDB is well-positioned to meet the challenges of the situation driven by its V25 (Vision 2025) strategy, which becomes more relevant each day as the principles at its core are based on customer-centricity. The bank’s strategy largely focuses on the growth sectors of the economy and is disproportionately skewed towards the deployment of technology in all aspects of its operations. The strengthening and realignment of the organization structures make it more efficient for NDB to make technology accessible to customers across its demographics.
As a leading private sector banking group with roots in development banking, what is your strategy around providing stability and growth opportunities for the economy?
Our development banking heritage drives our customer engagements. We have been instrumental in sustaining and developing key agricultural sectors such as the paddy value chain, tea growers etc., and also on smart agri initiatives. Our support to ensure that the essential commodities keep flowing into the country helps maintain economic and social stability. We have and are supporting renewable energy initiatives as we see this as a key economic imperative for the future resilience of the economy. The drive to increase financial inclusion through our banking for women, Jayagamu Sri Lanka and digital initiatives continue unabated. ESG is an important aspect of everything we do and is not confined to customer engagement. It is a primary consideration when it comes to driving change in the operations of the Bank as well.
What is your strategy to deploy technology to reimagine the bank and secure the future for its clients?
The bank’s approach to technology is driven by client needs rather than what we think the client needs. This has been the formula for the outstanding success we have witnessed in our mobile banking propositions to both individual and SME clients. The NEOS Biz solution that was introduced recently caters to the needs of SMEs and is the only app of its kind in the banking sector. The entrepreneurs and leaders of these companies are constantly on the move as they build their businesses, and NDB enables them to conduct their business from where ever they are. Once our core banking upgrade is completed, the same enhanced convenience will be offered to our large corporate clientele as well. The vKYC solution we launched has helped clients in different parts of the world open accounts with us seamlessly without coming to a branch, which is a great convenience at a time when travel is not what it used to be. Our embracing of technology is not limited to customer touchpoints but applies to back-office operations including RPAs (Robotic Process Automation), workflows, BI tools etc., which has helped improve cost and operational efficiencies tremendously, and there are several other initiatives in the pipeline we aim to launch at the appropriate time.