Q: What is the impact of the current economic crisis on the banking sector; and how long do you
expect pressure on the sector to continue?
A: Banks are the nerve centre of the economy and critical to resolving the present situation in the country. Whilst every participant in economic acti­vity is feeling the impact of the current situation, I feel that the banks are bearing a disproportional responsibility to ensure that the economy keeps ticking.

The need to finance eco­nomic activity – especially foreign trade activities, at a time when there is a systemic scarcity of foreign currency – is extremely challenging.

However, banks are shoulde­ring the responsibility to make sure that essentials reach our shores and also support clients to ensure that they survive this calamity.

This sharp depreciation of the rupee followed by the sharp increase in interest rates, compounded by soaring inflation, has put pressure on banks’ capital ratios. Banks are also challenged to manage non-performing assets at reasonable levels going forward.

I believe that the worse is yet to come. However, we are making arrangements to be well positioned to support our clients and the country through more difficult times ahead.

NDB is pleased to see that the first round of staff level discussions with the Inter­national Monetary Fund (IMF) was concluded at the end of June. We expect the process to move fast along with a resolution reached with external creditors, which will result in a timely cash infusion. This will help alleviate the pressure on foreign reserves and also enable other market counter­parties such as multilateral lending agencies to return to the market.

Nevertheless, a meaningful recovery will require the implementation of a fiscal consolidation plan and discipline, which will take longer. Therefore, we expect the pressure on the banking sector to remain elevated over a protracted period.

Q: What can banks do to weather this crisis?
A: In the short term, banks need to take action to maintain a high level of liquidity, which will come at a cost and con­serve capital to weather un­expected shocks. Banking regulations require us to build up a capital buffer called the Capital Conservation Buffer that can be used in these of scenarios. This prudent ac­ti­vity is what’s going to help banks ride out this storm.

The Central Bank of Sri Lanka has now allowed banks to draw down these capital buffers to help them tide over this crisis. In support of this, capital expenditure should be curtailed and it is imperative that banks move to more cost-effective transaction methods such as digital platforms.

At NDB, we are happy to note the tremendous success our NEOS App is having while the AI-based VKYC solution and robotic process automation we introduced have helped reduce the cost of incremental transactions.

Digitising back office opera­tions and transiting to more sustainable operating structures is essential to streamlining overhead expenses and improving internal capital generation.

Q: How has NDB geared up to meet the present challenges?
A: NDB’s foresight in for­mulating its medium-term strategy back in 2020 is paying dividends now.

The Bank’s V25 strategy is a voyage of change and innovation that’s aligned with the growth sectors of the economy such as exports and key industries.

While striving to become the banking group of choice for customers’ banking, and financial and capital market requirements, our strategic focus is about putting the customer at the centre of everything we do through a solutions driven customer-centric approach.

Our functional specialisation to service business verticals across the group has ensured that all our clients have access to tailored banking expertise. The staff remains our key strength and we have gone to great lengths to ensure that they are taken care of – including providing transport for them via nine buses and offering work from home arran­gements to 33 percent of employees so that the current fuel crisis can be managed.

Last but not least, we are leveraging our strong digital presence to provide con­venience to our customers. Our NEOS Biz app is ground­breaking and takes the con­venience of mobile banking to the SME sector.

This strategy, which was established before the eco­nomic crisis, is extremely relevant under the current situation. For example, the bank’s implementation of transaction banking, supply chain financing, family bank­ing and digital strategies is having a positive impact on the community, making it easier and more convenient for customers to bank.

Among numerous other accolades including LMD’s Most Awarded entity, I am pleased to say that NDB was named the Best Bank in Sri Lanka by Global Finance in the US in 2022 for the fourth consecutive year.

Q: What is NDB doing to engage with the community and other stakeholders during this time?
A: At NDB, community en­gagement is woven into the fabric of how we operate.

Our CSR activity is designed to create sustainable and re­silient communities that help build capacity. We work with vulnerable segments to im­prove financial inclusivity such as our Banking on Women initiative.

Recently NDB conducted specially curated programmes for schools located close to the Anawilundawa Wetland Sanctuary.

There has also been signi­ficant growth for women in small and medium-size businesses in Sri Lanka even amidst countless market challenges. This is the result of an initiative between NDB and the International Finance Corporation (IFC), which has led to the opening of over 49,000 new savings accounts dedicated to women and increasing the value of deposits by 600 percent.

It has also helped grow the portfolio value of outstanding women small and medium en­terprise (WSME) from US$ 3.3 million to 12.6 million dollars in two years. The pro­gramme aims to increase fi­nan­cial inclusion in the coun­try with a special focus on financing for women. It has proved successful with retail assets growing by 21 percent amongst the female base.

We expect to push forward with our backing for the ex­port sector. There will also
be an increased focus on re­mittances so that we can lend our support to ensuring the smooth flow of essentials. This will enable the economy to keep ticking while creating capacity for employment.
The bank is mindful that extending credit will have to be carefully considered since high interest rates and increasing inflation will di­minish repayment capacity.

Meanwhile, NDB’s digital solutions continue to bank previously unbanked cus­to­mers in its push to improve financial inclusivity while making day-to-day personal banking transactions hassle free and convenient.

Q: Do you expect to see more of M&As in the current scenario?
A: Not immediately. However, I suppose we will see an in­crease in M&As before this crisis is over. The IMF expects the economy to contract significantly and in order to survive on a limited level of sales, businesses will have to pool resources.

This may be one of the most prudent routes to take considering the current situa­tion. It will help improve efficiencies and achieve break even volumes, as well as increase competitiveness locally and globally. As a Group, NDB will actively support M&As through its investment banking arm supported by NSB Securities and NDB Bank.

Q: What is the best mone­tary policy you expect to see as the nation moves towards economic recovery?
A: Considering the current situation at hand, there isn’t a specific ‘best’ monetary policy to consider. However, the current monetary policy has to change to manage the economy as it transitions.

It is also paramount that the monetary and fiscal policies go hand in hand.

The printing of money has to be curtailed and interest rates need to be moderate
to sustain economic activity. However, rising inflation driven by excessive demand and compounded by restricted supply due to local and global issues is a very difficult com­bination to contain. That’s why a dynamic monetary policy is necessary. And foreign exchange market stability and the free movement of capital needs to be encouraged.

Meanwhile, the country’s reserves must be replenished to support a meaningful monetary policy. These measures have several practical challenges but this is the best time to introduce such policy reforms that will have a lasting positive impact on the country in the long term.

– Compiled by Yamini Sequeira


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