The banking sector and economy as a whole was hit by the twin shocks of sharp increases in interest rates by over 10 percent within a span of a couple of months while the rupee depreciated by almost 75 percent during the same period. This, coupled with the clamp down on imports and imported inflation, impacted the asset quality of banks.
“In the face of these macroeconomic headwinds, NDB fared quite well as can be seen from our first quarter numbers. The robustness of our underwriting standards, investments in digital technology and streamlining of support functions allowed the bank to be agile and on top of the situation. Availability of ready information to make timely and informed decisions in a collective fashion helped the bank navigate these challenging times,” says Vice President – Treasury of NDB Niran Mahawatte.
He explains: “Firstly, we need to understand that the forex crisis is not an isolated incident but the culmination of events preceding the pandemic. The inherent structural imbalances in the economy were brought to the forefront due to the impact of the pandemic on key aspects notably tourism and worker remittances. Therefore, key lessons would be to correct the structural imbalances in the economy, bring in more fiscal discipline and take action proactively.”
Mahawatte believes that it is critical for the government and the regulator to allow market factors to determine exchange rates as artificial involvement for a longer period leads to grey markets becoming more dominant.
Sri Lanka has four main foreign currency inflows – tourism, exports, worker remittances and FDIs. In terms of worker remittances, the inflow from blue-collar workers is more assured in nature than that of white-collar workers.
“The challenge with blue-collar workers is the use of informal channels to remit money, which means that foreign currency may not enter the country at all. Therefore, these issues should be addressed separately from those of white-collar workers, who need economic stability and investment opportunities to increase the amount of money they remit to the island,” he opines.
Assessing the main criteria that banks and financial institutions must take into consideration to maintain stability and facilitate growth, Mahawatte explains: “This is a very tricky situation because we need to meet the immediate needs whilst facilitating the medium and long-term requirements of the country.
“The immediate requirement is to make sure that essential imports are facilitated to keep the economy performing whilst ensuring that the needs of the larger community are sustained. All this must be done with the limited foreign currency.”
On the other hand, he says that banks need to be cognisant of the looming spectre of non-performing assets on the back of an economic slowdown. “So banks must take steps to conserve capital. Due to the high level of taxation, the financial services industry is not help
ing capital creation under the current circumstances. In this climate, the economy will need to attain a level of stability before we can grow again as a country,” he adds.
Mahawatte says: “Given certain measures and controls taken by the Central Bank of Sri Lanka on nonessential imports coupled with restrictions on open account transactions, we may see a significant drop in imports in the coming months.
“Banks are also quite selective in opening LCs and accommodating imports, and base their decisions on the cash flows of individual banks. If we can sustain our current exports and increase inward remittances through the banking channels, we should be able to narrow the gap in trade deficit. This will bring in more stability to the currency with minimum fluctuations.”
Meanwhile, Vice President Branch Network Management and Product Development at NDB Zeyan Hameed says: “In the interests of national economic stability, NDB plays a vital role in promoting the official channels of remittances as its primary responsibility. NDB has implemented a range of strategies to attract worker remittances such as seamless remittance processing, call and convert, wider network to access the remittance, additional benefits for routing remittances through official channels and other banking benefits too.”
As a part of NDB’s efforts to encourage inward remittances through formal banking channels as a responsibility towards the country, it has introduced the most convenient way in which clients can receive money via Western Union with only a phone call to NDB’s Call Centre on 7448888 or by sending a message through the NDB NEOS app.
The funds received will be credited to the respective individuals’ accounts at NDB within five minutes. NDB has also taken steps to place dedicated resources in identified foreign markets to enhance its personalised offering to overseas clients.
NDB was also the first bank to introduce an AI technology-based VKYC verification option for Sri Lankans overseas to open their accounts through its NEOS app (available at Apple App Store/Android Play Store) and provide them a hassle free banking experience. NDB also offers special benefits on other banking products for customers who send regular remittances to NDB.
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