Sri Lanka was embroiled in a 26 year violent conflict, which only came to an end in 2009, yet it managed to sustain a GDP growth rate of 5% over the last decade and reached a high of 8.2%, last year. What do you think is the key factor behind the acknowledged country’s resilience?
You can say that the growth in the export sector, increased earnings from Tourism and the huge increase in Foreign Direct Investments, along with the worker remittances.
Mr. Caabral also mentioned that “a revolution has taken place in the economic system of the country” thanks largely to the state banks. What do you think he meant by this??
Even though more than half of the country´s financial institutions are private banks, you have to keep in mind that more than 40% of the financing for the infra-structure projects has been done by State Banks. This means that indeed, we have taken a major role in all these activities.
Although half of the financial sector’s 22 financial institutions are private banks, at the end of financial year 2009, 40.53% of the industry’s assets were controlled by Bank of Ceylon (BoC) and People’s Bank (PB) alone. How do you see this balance changing in the future?
Although the market share is equally distributed, I feel that both our position´s, BoC and PB, will be maintained. Whatever Foreign Banks decide to come into our market, our State Banks will remain stable. State Banks have an outreach to the entire island and the strategies we are adopting will help us to maintain our market share.
Last month President Rajapaksa met with the Heads of Sri Lanka’s state banks – including the Chairman of People's Bank Mr. Karunajeewa- at Temple Trees, with a view to obtaining their views and suggestions in preparing the 2012 budget. 6. How progressive were the policies discussed? Will the government continue the status quo, or will it need to introduce a new set of policies to obtain the sustained 8% GDP growth required to meet its objectives?
They discussed mostly how we could maintain our current economic growth and in what ways can State Banks provide their fullest support.
Do you believe then that a sustained 8% growth rate is achievable?
Yes, it is absolutely achievable.
We have actually had the honour of meeting with His Excellency President Rajapaksa, and during our meeting he told us about his vision for the future of Sri Lanka - ‘Mahinda Chintana’. One aspect that His Excellency placed great emphasis on was establishing the country as a regional hub of ports, aviation, commerce, knowledge and energy. What is the financial sector doing as a collective unit, to make this objective of establishing Sri Lanka as THE regional hub, a reality?
Many things, as ultimately each sector needs the support of the banks and, hence, the financial sector is very much behind the development of all these Hubs. For example, with regard to the Knowledge Hub, they have commenced enhancing IT education in the Universities and the financial sector is providing the funding. Also, the major infra-structure developments, including roadways and power stations, we as a leading State bank, are behind them providing financial facilities.
Another aspect in this Mahinda Chintana is concentrating support on the disadvantaged areas. With a customer base of almost 13 million people and the most extensive Branch network of any Bank in the country, People’s Bank must be playing a crucial role in supporting this. How do you access the People’s Bank role in re-building these communities in the period of peace and stability after 2009?
People’s Bank is THE Bank who is in the forefront. Even during the time of the war we were present in those areas while other banks did not have many branches in the entire country. Now that the war is over, some of the service centres we had, have been upgraded to Branch level and are now providing special loan schemes for agriculture and fisheries. This is our mission and we are very proud of how much we are contributing to the micro-finance segment, we have given out over Rs 4 billion rupees in loans for development in micro financing in the North and East.
Of course, we are also present in the commercial and corporate sectors, and we have over 100 Branches in the North and the East and over 707 Branches around the entire country. As you rightly said, this is the Bank with the largest network of Branches. Also, and in order to contribute more to empowering people and providing employment, we have recruited about 2000 customer service assistants and about 250 management trainees, from the regions.
There is a high percentage of people who choose People’s Bank to place their deposits; in total, 13 million people have decided to bank with you. What is it about People’s Bank that makes people place their trust in it?
People’s Bank was the Bank present throughout the entire country. Even in the rural areas. It is true that the other banks have branches in the country side now, but we were there very much before. We have built up a reputation and now are known as the bank that speaks the language of the country. We have built trust in this fashion.
People’s Bank took the bank counter within the reach of the people. When the banking sector started, banks were catering to the private and commercial sector; the elite, you could say. The English speaking elite. But the local people speak in Sinhala or Tamil, so they could not go enjoy the benefits of banking. They were actually scared to go to the banks, due to this lack of communication. So when People’s Bank opened, we addressed this issue. Our name is very indicative of our philosophy: people, in “Sinhala”, is “Mahajana ”.We were the first to print the cheque book in all three languages. Therefore, people started to see us as their bank, the bank that was there for them.
Redevelopment of the war-affected areas has had an obvious effect on the People’s Bank, with deposits growing by 17% in 2010, and an additional 6.1% between December 2010 and June 2011 – now standing at 490 billion rupees. How do you see this figure of 490 billion rupees changing in the near future? What deposit-related targets has the People’s Bank set itself?
Our goal is to reach a deposit base of Rs 1 trillion by 2016.
How are you going to go around achieving that, different campaigns you are going to engage in to meet the demand you have not met already?
Well, the security of being a State Bank is a seller. Another thing is that our branches are closer to their homes, so they can easily walk to the nearest bank branch . I think that with our reach, the service delivery we offer, innovations and our technology, we are poised to reach the Rs 1 trillion mark. The other banks cannot aspire such a target, as they have a lot more to do to be ready. People´s Bank has over 700 branches and over 13 million customers, which is more than 50% of the total population. So we are ready. In this sense, we will be taking our technology to the people –to all segments of the people and not just the elite- before any other bank. Thereby, we are confident that the people will be with us and want to invest more with us. Also, we start attracting various age groups, this way the children who have started banking with us, will grow with us.
So how are you targeting children in particular?
Simple. We have studied their particular needs. We are a bank that has a very strong brand and that is able to cater to any stage in the life cycle. For instance, we have links with hospitals and schools, and therefore we can offer new-borns and students a start-up deposit. They can open an account with People’s Bank, which is a good start to save for life.
So that you get an idea, in one year, there are about 365,000 child births in Sri Lanka.. About 50% of the children’s savings accounts have been opened by their parents, with the People’s Bank.
So how do you go about approaching the parents? How are they made aware of these children’s savings accounts?
Of course, People’s Bank maintains the highest Top of Mind scores in the banking sector. Year after year, all the market surveys prove that. We are the best known bank and we are near to our customers, so we are a bank that can give an account to all the new-borns.
The banks success has quite clearly been recognised, with Fitch Ratings upgrading People’s Bank’s National Long-Term Rating to AA from AA-, and revised the Outlook to Positive from Stable, whilst RAM Ratings Lanka has assigned long- and short-term ratings of AAA.. What does this impressive ratings mean to the People’s Bank, so how important is it that you have been recognised with such ratings?
Ratings are very important to us. With the current economic growth of the country, we are going forward as an institution. In this sense, we are going to issue Foreign currency debentures ; that means foreign funding which will shoot up our ratings even more. There was a time when we had a few issues and our ratings were hovering around BB and B. But we overcame our difficulties and here we are today. We have tapped into the international market.
How did you enter the international market?
We have done road shows. In addition to this, we have our correspondent network out there and through that, we approached the international market. Finally, we visited the banks. About three months ago, We went for a syndicated loan to four countries and 15 banks, which was oversubscribed by three times. No doubt that our ratings were instrumental in this success.
A fundamental ingredient for any growing and prospering economy is a constant supply of entrepreneurs with new ideas. But these entrepreneurs need a lot of support in the initial stages. Could you please tell us about the entrepreneurial loan schemes PB offers?
Entrepreneurs have People’s Bank Fast Cash. The farmers and the agriculture sector have the Micro, small and medium soft loans and various other schemes to encourage entrepreneurships. Also, we have set up a special unit for Co-operative and Development Banking, which covers these types of micro and SME loans.
These loans are taken up substantially within the agricultural sector. How have they allowed agro-businesses to diversify and add value?
Most of the customers we have who are involved in agriculture will stick to agriculture. Our customer base is very much in the rural areas. This includes farmers, small industry, or other activities and these loan schemes cover all these activities. Even within agriculture, we have loans for different products such as coconut or paddy. Another thing we do is what we call buy-back agreement payments: we negotiate with the buyer and get a guarantee from him that serves as a guarantee to fund the agriculture loan. So, with regards to diversification, that is one example.
The pawning business has become an integral part of the financing cycle for agriculture, as well as in the financing of SMEs – a sector that CEO of Nations Trust Bank Mr. Rajakaruna told us was the future for the financial sector in his opinion. I believe pawning actually accounted for 32.6% of the banks loan portfolio in 2010. Could you tell us a little bit, some basic information about how pawning works and why it is so prevalent in Sri Lanka.
Pawning basically means a security for your gold jewellery; you can borrow against that. Most of our business is agricultural relief based, while pawning of gold is a seasonal thing. When the cultivation period starts, farmers need money. That is why they pawn the jewellery, so they can get the necessary funds for planting. Once the harvest is ready, they sell those products and with the profits they can redeem their jewellery. It is very convenient for the people.
The reason why we started this pawing scheme first in the banking industry, was because at that time there was financial illiteracy. Because of this, we could not simply carry on business as usual with certificates and documents; also, the complex nature of the loans and the time duration it took, was too much for our small customers. But pawning gold jewellery takes only a few minutes. In Sri Lanka, people collect gold jewellery as a sign of wealth since the good old days. Now, after we started this pawning scheme, all the banks are in a buzz and trying to get into it as well, as there is zero risk involved.
So if a customer defaults on his debt, the bank can recover the loan . If an object is worth around Rs. 40,000, we advance Rs. 30,000, and keep a Rs.10,000 buffer. That is why there is no risk. But this seldom happens as most of the jewellery has significant sentimental value. Therefore, there is a 99.9% recoverability rate. If by any remote chance we do not recover the loan, we can auction it off after 6 months.
Is it a competitive market?
There is a lot of competition but still we maintain our leadership. The biggest market is in the rural areas, where our presence is strongest. Since we are the pioneers in this field, we have an edge over the others which allows us to maintain about 50% of the market share.
With regards to the low risk this represents, it is because you do not need any credit requirement since you have a commodity in your hand. Furthermore, the entrepreneur who might have difficulties in obtaining personal loans because he cannot prove his repayment capacity, is able to get the funding he needs..
I read in the news recently that People’s Bank has just partnered with Dialog, which means the largest network and the largest number of depositors, connecting with the largest mobile supplier. What does this mean for the future of the People’s Bank? Do you think it will attract new customers?
With the latest technological developments, people are getting very IT savvy. Customers tend to avoid frequenting bank branches as much as possible. Therefore, as Dialog has the widest reach as far as telecommunication is concerned, we wanted to take advantage of this and join the trend. So we can offer SMS banking, money transfers, balance checks… This means that people do not have to physically go to the bank to do these operations. You have to keep in mind that the phones in use equal the population of Sri Lanka, so in partnering with Dialog, we are now having the opportunity to enjoy 70% of the market share. Actually we are working with Mobitel as well.
How can you take this into the future, mobile phones are in now. Are there plans to further develop this form of analogical banking?
Yes, to improve and develop this further in order to be the leading bank in the technological field. Another aspect we are working on is to go to the trader - as he does not have the time to go to the bank- and collect his deposits, handover the receipts, and update their accounts (using hand-held devices, termed ‘Palm-top banking’) . We are offering internet banking to the middle and high net worth customers.
Obviously one of the main issues in recent years have been the high influx of non-performing loans. I am referring more to the 2009, the very beginning of 2010, the NPL of People’s Bank spiked at 12.235 %, year on year to 12 billion, by the end of the financial year 2009. What was the main reason for this?
If you look at that particular time, the bank had a non-performing ratio of about 3.5%. In comparison, in 2007 we had a ratio of 6.5%. So in two years we saw a 12.5% increase. One of the reasons for this is that the general overall economic conditions were not that conducive. But I think from People’s Bank´s perspective you have to see the net non-performing ratio which after taking out provisions and suspense is only 1%. So you have to compare us with the industry, which is as high as 3%. Right now, our non-performing ratio is 4.5%. When we talk about from 2009 to 3qr 2011, it is 4.5%. But the net non-performing ratio is only 1%. Since we provide about 70% of the book, we are extremely proud of our non-performing ratio.
We went through a restructuring in the year 2000. The credit evaluation process and the granting process were revamped and we focused on clearing the books.
People’s Bank’s dedication to CSR is nothing short of unbelievable, with everything you do seeming to have the triple bottom line of Profit, Planet and People. Last year you focused your philanthropic attention mainly to developing the North and the East of the island. What can you tell us about your is your CSR. Is there anything now that you are proud of?
The thing we are most proud of is that on the 16th of September we will be handing over 50 houses to displaced people in the North. Last year we renovated t a hospital in Buttala at cost of Rs 20 million. There are on-going projects also at the Kankesanthurai railway line where we initially gave a sum of Rs 5 million rupees; we also handed out relief to the displaced people in the North and the East. In this sense, we were the first to go to these areas to take food and clothes worth about Rs 11 million. Our employees also collected over Rs 26 million and handed it over to H.E the President for more housing projects. Of these 50 houses, about 40% of the cost was borne by the bank´s employees. They volunteered these funds themselves.
Perhaps my favourite CSR initiative that the bank has engaged in was your 2009 programme “Plant Today – Reap Tomorrow.” How did this initiative link in with the governments moves towards making Sri Lanka food sufficient? What results have you seen?
The Government had a plan of planting 10 million plants in 2009. We took the initiative and supported the Ministry because we had the largest branch network. This was a significant move because we made people conscious about growing trees and how it contributes to the environment. Wherever we are present, we implement care and love for the environment. We have made about 10,000 enclosures to make our offices as environment friendly as possible. Government itself, is encouraging people to have their own backyard and grow a few plants and vegetables. Now, even the Government offices in the commercial hub of Colombo, are growing fruit trees. That is part of the long term Mahinda Chintana plan.
That is what I want to ask you now, what are your plans for the future as a CSR is the future?
We will concentrate on education, culture, environment, re-building the North and the East, where we are definitely setting an example. We are setting up their houses, empowering them and uplifting their livelihoods through micro financing. People’s Bank has the highest contribution in micro financing in the country, so we are really a development oriented bank. In this sense, our vision says we are the bank for the aspiring people of Sri Lanka.
Mr Kumar , you have 32 years of treasury laced experience and truly dedicated your life to this industry and now you are holding a crucial role in one of the two largest industries, in the country. Why have you put so much emphasis ad time to this industry, in Sri Lanka.
I started banking as a career, my father was also a banker, I liked that so I joined in. At that time I was put into the Treasury, once you get into the Treasury, it is difficult to move out. When you get used to that you enjoy it. Trading and dealing and a lot of facilities so that is why I got involved in the Treasury functions. I was in the Foreign Bank for 22 years, ANZ Grindlays Bank which is an Australian Bank, which was later taken over by the Standard Chartered Bank. At this point the People’s Bank was undergoing a restructuring programme and they wanted to build up a Treasury here, as there was no Treasury here. To set up the Treasury and mould with the Treasury activities here. Now I can say it is one of the formidable Treasuries in the country.
What is it about, you personally think, made them realize, is the need to put the bank in the right track?
They were looking for people and I had the opportunity, I worked for a Foreign Bank for a few years, they are a State Bank and I thought I can do something here, that gave the opportunity too, I joined, as they had the resources here, the People’s Bank and can be steered the correct way, so I got the start and recruited the right people, the most professional and academically qualified people and now it is one o the strongest Treasuries in the country, which has immensely contributed to making the People’s Bank achieving the present results.
Yeah, ok, well, thank you so much for an interesting interview.
My final question before we close the meeting is, what is your final message as Head of People’s Bank and also as a Sri Lankan to the millions of readers of the Foreign Policy Magazine?
I think now with the present President, Sri Lanka is politically stable, economically we are sound, infra structure day by day is developing and is the country to come and invest, that is the message, can you add to what I have said. Yes, it is a Paradise Island in the world, so why not come and visit and enjoy more and improve.
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