Banks play a vital role in an economy; and in Sri Lanka, the economic crisis – following challenges such as the April 2019 Easter Sunday attacks and COVID-19 pandemic – has created multiple challenges for the banking sector.
Deputy General Manager of the Wholesale Banking Group of Hatton National Bank (HNB) Damith Pallewatte shed light on some critical areas that will enable Sri Lanka to emerge from the prevailing situation.
These include developing export industries, and promoting local manufacturing industries and import substitution, the tourism industry and the island’s agricultural ecosystem.
He mentioned that all these economic lifelines need banking support, highlighting the critical role the sector is expected to play in the country’s recovery journey.
Pallewatte is a firm advocate of coexistence and he expanded on this concept: “We need to inculcate the values of cohabitation. There are some sectors of the economy from which we have heard questions about whether they will need to pay off banks’ debts if the government defaults. That is not how we should go about this when banks lend depositors’ money.”
He continued: “So it’s for the betterment of society and the country that we coexist, and support each other in a time of revival like this.”
“Revival is a tough journey – it isn’t easy, and many harsh and sensitive decisions need to be made,” he cautioned, listing factors such as rehabilitation, restructuring, asset disposals and new equity investments as those that need to be considered among others.
Pallewatte explained that “you cannot look at a specific item in isolation; you need to look at a more holistic picture when it comes to getting into the revival process.”
In addition, he spoke about the uncertainty surrounding the domestic debt restructuring process. “Until the debt restructuring exercise is completed, everybody will be waiting to hear what’s going to happen,” he said, adding that there are many predictions about the exchange rate, liquidity and other haircut options.
He added: “It’s natural that we see these concerns coming out of this debt restructuring phase. We believe that if we adapt to what we’ve adopted we will come through.”
HNB’s Deputy General Manager of the Wholesale Banking Group outlined the need for banks to “maintain performance and growth” during the economic recovery process.
And he explained: “There are a few areas that banks need to be conscious of. We have seen interest rates gradually decline and as a result, banks’ margins would reduce, affecting net interest income and profitability.”
Adding to this, Pallewatte spoke of the adverse impact of Sri Lanka’s negative ratings in the global context in recent times.
He stated: “Apart from the difficulties we’re facing with businesses, banks have challenges dealing with counterparts in foreign countries. So we believe the country needs to engage with rating agencies to ensure there’s a swift revision of ratings once its debt sustainability reaches an acceptable level.”
“As a nation, we have achieved our debt restructuring process much faster than others,” he observed but noted that while “we can be quite satisfied with the speed with which it happened, it hasn’t concluded yet.”
Pallewatte opined: “We believe Sri Lanka has enormous potential to emerge from the current situation; there are enough ingredients that can support and fuel rehabilitation – and a revival.”
Everyone – the government, industry and banks – has a role to play, he declared.
Emphasising that Sri Lanka’s banking sector has always supported businesses and will continue to do so, he stressed the need for corporates to uphold the principles of coexistence and cohabitation.
“We need to inculcate this among ourselves – and our communities, businesses and relationships – so that we can help revive the economy and the country come out of this situation,” Pallewatte concluded.
