“The whole world has been impacted by the ongoing pandemic and even in Sri Lanka, most industries have been affected,” said the CEO of Nations Trust Bank Priyantha Talwatte, as he described the state of the local banking sector.

He added that “during the pandemic, various sectors were affected in different ways but not equally,” elaborating also that “since the impacts have been uneven, some segments recovered at a much quicker pace while others will take longer.”

Talwatte continued: “Unlike any other time in recent history, there were many restrictions on travel and physical activity involving social interaction. As such, all business models that operated in this manner were affected – including banks.”

While the digitalisation of Sri Lanka’s banking sector has been progressing at a rapid pace, he noted that this transformation has been widely embraced across the world as a result of the threat to physical models.

“In the banking sector, there were early adopters whereas some had not embarked on the digital journey at all,” he observed, stressing that the pandemic has motivated more businesses to implement digital models and these changes are here to stay.

Expanding on this, Talwatte declared: “This will have a permanent impact on the post-pandemic environment and digital implementation, and many of those who did not pursue these changes prior to COVID-19 will be rushing to implement initiatives to enable digital delivery services.”

In the financial services industry, the acceleration of digital adoption raises concerns about data security. Given this reality, banks must take measures to protect customers’ personal information.

“There is never an end state as security is an ongoing journey,” Talwatte maintained, adding: “As things evolve, you must improve your game. You cannot pursue digital without considering security, and the regulator and other supporting institutions have taken efforts to ensure the safety and privacy of data used in the digital era.”

Against this backdrop, the banking sector will face challenges when it comes to identifying which industries need help to adapt to the new landscape.

In his view, the “smoothing effects” of the government’s interventions have been welcome; and although the first quarter of this year is likely to be similar to the last quarter of 2020, economic activity is expected to pick up in the second half of 2021. This is to be driven by the prospect of vaccines, therapeutics and herd immunity.

Earlier this year, Central Bank of Sri Lanka Governor Deshamanya Prof. W. D. Lakshman pledged to establish a “permanent single digit interest rate structure” in the country. Talwatte explained that this would support existing borrowers when it comes to servicing facilities while encouraging new investments.

However, there may be negative impacts on certain groups such as senior citizens and retirees without alternative investment options to compensate.

Commenting on the steps taken to draft a new banking act, he highlighted an area of concern: “A great deal of work has been done over the years to safeguard borrowers but in my view, not enough to protect lenders.”

According to him, sufficient protection would give rise to a democratisation of credit.

“While we may think credit is accessible, it’s not available to everyone,” he maintained, citing the existence of more than 1,000 unregistered leasing companies beyond the formal banking sector.

Talwatte acknowledged that the idea of protecting borrowers and lenders may seem contradictory but believes that not doing so could harm the former as some are driven away from formal lending sectors as a result.

As for the outlook for the banking sector, Talwatte reiterated the hope of economic activity rebounding in the second half of this year and the country emerging from sluggish conditions: “As we come out of 2020 – when growth contracted – there is room to accelerate and move forward.”