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Friday July 12th, 2024

People’s Bank: Economic Outlook, Opportunities & Challenges

Clive Fonseka, Chief Executive and General Manager, and Sujeewa Rajapakse, Chairman of People’s Bank

Sri Lanka’s economic recovery is gaining momentum, though it remains fragile. In June 2024, the International Monetary Fund (IMF) released $336 million from Sri Lanka’s Extended Fund Facility, bringing total IMF financial assistance to approximately $1 billion. Additionally, Sri Lanka reached agreements with bilateral creditors from the OECD, India, and China to restructure $10 billion in debt, signalling positive strides towards a strengthening recovery.

In this context, Clive Fonseka, Chief Executive and General Manager of People’s Bank, reflects on the bank’s pivotal role in shaping the country’s economic future. People’s Bank, as the second-largest bank in Sri Lanka, supports both the state and private sectors, from multinational corporations to micro, small, and medium enterprises. The bank not only meets their credit needs but also helps them access global markets and facilitate international trade. Its extensive reach is notable, with over 15 million customer accounts in a country of just over 21 million people. At a time when State-Owned Enterprises (SOEs) are central to reform discussions, People’s Bank stands out as a profitable SOE that significantly impacts the economy, businesses, and people’s lives.

With over 63 years of service, People’s Bank reported impressive financial results in 2023. The number of outlets increased to 747, and the number of ATMs rose to 828, while CRMs/CDMs grew to 337, SBUs to 307, and SCDMs to 50, with the value of deposits increasing to over Rs2.71 trillion and the total assets base rising to over Rs3 trillion. External ratings include an A (lka) from Fitch and an AAA from Brand Finance Rating. The bank’s total contribution to the Government of Sri Lanka was Rs13.9 billion for 2023, with a profit before tax of Rs 15.3 billion and a profit after tax of Rs 10.1 billion.

People’s Bank is also a leader in fostering digital banking and inclusion in Sri Lanka, gaining global recognition for its initiatives in innovation and technology adoption. In this interview, Fonseka discusses recent economic developments and the bank’s strategy to unlock opportunities for its customers and the broader economy.

Excerpts from the interview are as follows:

What is your reading of the prevailing economic challenges and the policies to reset the economy?

Sri Lanka is facing significant economic challenges, namely rising debt levels and low growth mainly due to the impacts of the COVID-19 pandemic and the slowdown the country experienced. These issues have necessitated robust policy responses. The government is focusing on fiscal consolidation, flexible monetary policies, structural reforms, managing the government’s income and expenditure, continuation of the IMF programme, debt restructuring and restructuring of loss-making SOEs to reset the economy. These measures are aimed at reducing the fiscal deficit, managing public debt, and fostering an environment conducive to sustainable growth. The steps that the government has taken have resulted in stable interest and exchange rates and positive GDP growth.

How has People’s Bank contributed towards the country’s economic progress over its 63 years of banking?

Over the past 63 years, People’s Bank has been instrumental in driving economic progress in Sri Lanka. We have supported agricultural and rural development through targeted lending programmes, enhanced financial inclusion by providing banking services even in the most remote areas, facilitated trade and commerce for businesses of all sizes, and promoted savings and investments through various deposit schemes and investment products. In fact, we have introduced many new product categories such as children’s savings accounts, ladies’ accounts and pawning to this country. We have also been at the forefront when it comes to funding infrastructure development and SME businesses. Our contributions have helped build a resilient and inclusive financial ecosystem which includes bringing the benefits of digital banking to the masses. Also, we take great pride in stepping up many a time to assist the government in importing essential goods such as Oil, Medicine, Coal etc. when most other banks were not willing to do so.

How is People’s Bank positioned to stabilize the economy and create growth opportunities for individuals and businesses?

People’s Bank is well-positioned to stabilize the economy by offering robust lending practices, innovative financial products, and support for SMEs. Our focus on digital transformation enhances customer experience and operational efficiency. By providing tailored financial solutions along with competitive pricing, we create growth opportunities for individuals and businesses, contributing to overall economic stability and development. We have also made it a priority to create Export Hubs to develop exports and increase our tie-ups with foreign exchange companies to bolster inward remittances.

How is the bank reimagining itself for the emerging opportunities and challenges once the debt restructuring process concludes, the Colombo Port City gathers momentum, and the country regains investor confidence?

As the debt restructuring process concludes and the Colombo Port City project gains momentum, People’s Bank is strengthening its capital base, enhancing technological capabilities, fostering innovation, and building strategic partnerships. We are developing new financial products and services to capture emerging market opportunities and positioning ourselves to leverage growth prospects in a resurgent economy.

We are in the process of strengthening ties with foreign banks to seek funding lines as and when the country’s rating improves after the external debt restructuring is completed.  We are also moving away from SOEs to the private sector when it comes to lending.

Being the Sri Lankan bank with the largest customer base, how do you plan to overcome the challenges of taking digital banking to the masses?

As the largest bank in Sri Lanka, People’s Bank is committed to overcoming the challenges of taking digital banking to the masses by enhancing digital literacy, expanding accessibility, and building trust in technology. We are implementing comprehensive digital literacy programmes, including workshops and online guides, to ensure all customer segments are comfortable with digital banking tools.

To expand accessibility, we are investing in our digital infrastructure, increasing the number of ATMs and digital kiosks, and enhancing our mobile banking app to function seamlessly even in low-bandwidth environments. Building trust is paramount, so we are continuously upgrading our cybersecurity measures and providing customers with tools and information to safeguard their accounts. Transparent communication about security and protection measures will help build confidence in our digital platforms.

Our digital banking platforms are designed to be user-friendly, with simplified interfaces, multi-language support, and accessible customer service. We are also exploring collaborating with fintech companies to integrate innovative solutions, allowing us to bring cutting-edge technology to our customers efficiently. To encourage digital adoption, we plan to offer incentives such as reduced fees and various types of rewards programmes.

We actively seek feedback from our customers to continuously improve our digital services and address any issues promptly. Additionally, we are establishing robust support systems, including 24/7 customer service helplines, chat support, and specially trained in-branch staff to assist customers with digital banking services. Through these comprehensive measures, we are confident in our ability to successfully bring digital banking to the masses, enhancing convenience, efficiency, and financial inclusion across Sri Lanka.

How will the new Central Bank Act improve financial stability?

The new Central Bank Act enhances financial stability by strengthening the regulatory and supervisory capabilities of the Central Bank, promoting transparency in monetary policy and financial operations, and ensuring accountability in decision-making processes. The governance aspect also has been strengthened with the new Act. This creates a more resilient financial system, capable of withstanding economic shocks and supporting sustainable growth.

What is your strategy to raise capital and ensure the efficient distribution of credit across the economy?

To raise capital, we plan to issue debentures utilizing capital markets to attract institutional investments. In addition, the Ministry of Finance is exploring the possibility of selling a minority stake in state banks to a strategic investor. For efficient credit distribution, we are implementing advanced risk assessment tools to ensure credit is allocated to creditworthy borrowers and prioritizing sectors with high growth potential. This strategy supports economic expansion while maintaining financial stability.

Can you take us through the importance of ongoing efforts to reform SOEs and how People’s Bank can support this?

Reforming state-owned enterprises (SOEs) is crucial for improving operational efficiency, reducing the fiscal burden on the government, and attracting private sector investment. People’s Bank supports these efforts by providing assistance for restructuring and modernization initiatives and offering expertise in financial management and operational improvements.

How do you see the debt restructuring process panning out? How can Sri Lanka ensure a smooth transition?

The debt restructuring process involves constructive negotiations with bilateral, multilateral, and commercial creditors, alongside necessary economic reforms to restore fiscal stability. Ensuring a smooth transition requires transparent communication with stakeholders, supportive fiscal and monetary policies, and adherence to agreed restructuring terms. Continuous monitoring will also be crucial.

Recent developments in Sri Lanka’s debt restructuring highlight significant progress. An agreement has been reached with the Official Creditor Committee, which includes  Japan, India, and France. This agreement involves a mix of long-term maturity extensions and reduced interest rates, which will facilitate the approval of the IMF’s Review and enable the disbursement of the next tranche of financing. Additionally, agreements with China and other bilateral creditors are in advanced stages​.

What role can People’s Bank play in this, especially in ensuring confidence in financial system stability?

People’s Bank can play a pivotal role by maintaining strong capital buffers, implementing robust risk management frameworks, and providing consistent and reliable banking services. By strengthening capital adequacy and ensuring financial system stability, we can foster confidence among investors and the public.

What is your economic outlook: growth, interest rates, exchange rate and inflation? And what do you envision for People’s Bank?

The economic outlook is moderately optimistic, with expectations of robust growth driven by recovery in key sectors. We anticipate stabilization of interest rates and the exchange rate as inflationary pressures ease. For People’s Bank, I envision continued leadership in financial innovation, expansion and sustainable growth through strategic investments, and a strong focus on community development and financial inclusion.