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Back from the brink

Interview - February 10, 2012
A few years ago, Seylan Bank was close to collapse. Mr. Eastman Narangoda, Chairman of Seylan Bank, discusses the bank’s extraordinary recovery

His Excellency the President attended the United Nations meeting recently and he came back with a very positive impression describing his experience as being very rewarding personally and for the country. How do you think the international community perceives Sri Lanka today?

Western countries should understand that we have faced a 30 year long war in this country. Only people who have faced that situation know how much we have suffered. There was always that uncertainty of not knowing what was going to happen the next day; of living in constant fear. Also, the people in the North and the East suffered a lot as these were the most devastated regions by the war. We even had cases of terrorists using people as human shields.

Luckily, the war ended in the East two years before it did in the North. Today, if you visit the Eastern Province, you will see that it is amazing. Our road network there is very much in par with what it is in other countries and this allows farmers and other producers to take their products to the market. In addition, many other businesses are also emerging. With regards to the capital, the landscape of Colombo has totally changed.

Due to the adverse publicity given to Sri Lanka by the Western media, the international community does not know what is really happening in Sri Lanka. Besides demining activities and rehabilitation of former LTTE cadres, Government has undertaken huge development projects throughout the country including North and East. We invite the international community to visit Sri Lanka and see the real situation here.

The times require a strong government with a majority in parliament.

Absolutely. President Rajapaksa´s reelection has to be interpreted as a clear mandate from the people. All the development projects inherent to the Mahinda Chintana, require a strong leadership to carry them forward.

Sri Lanka was embroiled in an internal violent conflict for 26 years  - only coming to an end in 2009. However, over the past decade the country has sustained a GDP growth rate of 5%, enjoying a high of 8.2% last year. What, would you say, were the key factors in Sri Lanka’s economic resilience?

There are two factors – one is the fiscal policy. The other one is the Monetary Policy. Both policies are being managed very efficiently by the Government and have resulted in a healthy economic growth.

In 2009, Seylan bank faced a crisis of confidence among depositors that threatened its existence as an institution. Almost miraculously, the bank managed to restore public confidence –without a need of a bailout from the Government or the Central Bank- in an unprecedented case in the domestic banking sector and indeed, in the global financial services industry. This whole procedure coincided with the start of your tenure in the bank. What were the underlying causes of crisis of confidence and most importantly, how did the bank manage to bounce back so rapidly and successfully? Please tell us what were the main guidelines of strategic plan established.

After I retired from the National Savings Bank I was appointed to the Presidential Commission to investigate companies which had collapsed or were going through difficult times in the year 1989. In December of 2008, during the Global Meltdown period, Seylan Bank faced a crisis situation. I received a phone call from the Governor of the Central Bank asking me to take charge of Seylan Bank. I said “No” twice because I felt it was like they were trying to put me on a sinking ship. Then, the Governor told me to take over the Bank as a national duty. We had a very tough time but fortunately, I had a very good and professional team of Board of Directors. Looking back now, we see that the Central Bank intervened at the right time. During the crisis period, in a matter of weeks, Seylan Bank lost Rs 18 billion. If they had not intervened, there would be no Seylan Bank today.

Even now in the US, there are more than 300 banks in trouble despite the bailouts from the Government. It is the same in the UK – banks are still struggling. But our bank was not bailed out by anybody. Seylan Bank came out of that difficult situation on its own with the Central Bank support. Our capital adequacy ratio and the liquidity asset ratio came down below the Central Bank´s requirements during the crisis. But now, we are well above the requirements: we have recorded an after tax profit of Rs 1.2 billion in 2010. This bank has been in existence for about 25 years and that is the highest profit level ever recorded.
The bank belonged to a business entity called Ceylinco Grup. There were about 303 companies in the Group. One of these companies was Golden Key, a credit card company that collapsed due to a scam. Therefore, people lost confidence. As a result a panic situation was created and people started withdrawing money from the Ceylinco Group of Companies. Then, one day, the Governor of the Central Bank called for a media conference and explained that they had removed the existing board and had appointed a new board headed by me. That helped eased the depositors’ fears and restore confidence. I had a media conference as well and I told them my short-term, medium-term and long-term strategies. The second task was to restore consumer confidence, followed by restoring the stability of the bank. At that time we had a very high ratio of non-performing loans (30%) so I made it my priority to bring that number down and improve the credit quality of the Bank. I also put into place a strategic business plan for the long-term. Last but not least, I implemented robust corporate governance policies, in the Bank.

How would you assess the role that your bank is playing in the economic renaissance of the nation?

With the dawn of peace in the country and the development activities introduced by the Government, there are many investment opportunities before us. We are planning to grab these opportunities and invest especially in the SME and hospitality sectors. By doing this we could positively contribute towards the government´s development efforts.

You mentioned non-performing banks which is one of the issues you have had to deal with. You managed to bring it down to 18% from around 32%.

We are planning to bring it down further to single digits in the next year, with the implementation of a vigorous recovery drive.

What type of risk management policies are you implementing? How are you addressing this issue? Obviously this is a big concern for the Bank.

This bank did not even have a risk management department before we arrived. But now, after forming the Risk Management Department, we have implemented a world-class risk management policy. In this sense, I can proudly say that we are 100% compliant with all Central Bank directives and regulations.

As the economy develops, developing the SME (small and medium-sized enterprise) and entrepreneurial sector is instrumental. How are you encouraging new businessmen and the young generation of entrepreneurs in Sri Lanka?

Our main strategy is not to give much prominence to the corporate sector. Indeed, we do business with the corporate sector, but margins are very low with the corporate loans while the SME sector is very encouraging as we can offer them loans with better margins. Furthermore, the recoveries are very good in the SME sector. In our strategic plan, our main focus in our strategic plan is to increase the SME portfolio and help the government´s development efforts.

How has Seylan Bank contributed to attracting a wave of new businessmen and entrepreneurs?

The Government has a policy to keep interest rates low. Now, if we look back 2 to 3 years, our interest rates were very high, well above 20%. But now, the rates have come down to about 12%. In this sense, we are encouraging investors to invest more. The Government has a policy to maintain low interest rates now to encourage entrepreneurs. 

When we spoke to Mr. Bandara, from NSB, he mentioned to us, how the mortgage business was a good business to be in. Seylan bank boasts that it is the Bank with a heart. First homes are particularly exciting projects. In what ways is the Seylan Siri Niwasa a scheme from the heart?

Because of my experience in National Savings Bank, I know quite well that they are the leader of the housing loans sector. So I thought that I would bring my experience in that sector to Seylan Bank. In this sense, we introduced the express housing loan scheme, which allows us to provide a loan within 4 working days. We provide home loans at a very low interest rate. Also, and very particular to Sri Lanka is the pawning business. The people in the North collect gold jewellery for dowry, and now they pledge their gold articles to Banks and obtain loans for their businesses and agricultural activities. And that is lower risk for the bank. So our mortgage business is flourishing. 

You are also participating with Sri Lanka Insurance, Ceylinco Insurance and Union Assurance in offering new banking insurance products. Do you see this as one of the reasons for regaining the public’s trust again?

Sri Lanka insurance is one of our main shareholders, so as a result of that, we can have a strong partnering with them. These partnering allows also to do cross-selling in the entire country, since we have branches in different provinces and this allows us to sell insurance products through our branches, therefore increasing our reach and market penetration and enhancing our services to our customers. We are also engaged in leasing, since this business is really flourishing in Sri Lanka with the economic development. So we are also aggressively marketing our leasing products. Since we have regained public confidence quite some time ago our involvement in Bank assurance is only a contributing factor.

Seylan Bank has been at the forefront in marketing several technology based products and services. This is also related to innovation. What is your innovation philosophy and how do you try to implement that into the banking business?

The country is moving more and more towards e-businesses. In this sense, we have many cross e-ban king products and our strategic plan is very e-oriented. We have e-banking, travellers card, e-commerce, sms banking. Our Internet Payment Gateway service provides vendors the opportunity to display and market their products/services online while also enabling Internet browsers with the facility of making payments for goods or services through the Seylan Payment Gateway by using their VISA Credit Card, MasterCard or debiting their Savings or Current account. Over the last few years, Seylan Bank PLC has offered Internet Payment Gateway solutions to a number of clients based locally as well as overseas. We are actively promoting our e-based products internally as well as externally and we are currently earning a reasonable amount of income through this segment.

Your CSR truly shows that Seylan is the Bank with a Heart. One of your most touching projects, was the Health Camp at Devanulla Village in Horana. Please tell us what inspired this project and how it is improving the lives of its recipients?

We have an obligation to take part in CSR activities. The way we see things, is that we depend on our stakeholders and our stakeholders are our customers, after all. In that sense, CSR is very important to support the economy and to gain benefits for the Bank. We have developed a school in a village and we will promote education in other regions as well. We have a Health Camp at Devanulla where we provide medical services free of charge and we are currently working on self-employment benefits and how we can help families to start small industries. In total, we have 97 branches and 34 mini branches and all of them are indirectly involved in CSR programmes. Furthermore, we are trying to improve education and health for the poor people. When we prepared the new strategic plan, we incorporated CSR as a key component and now we are looking to move into other villages as well.

Another sector we are interested in expanding into, is microfinance. Because there are no banks in some areas, not even a small post office, and there is not even a bus, people have to come and walk several miles to the town to carry out their banking activities. We have collected some deposits and we are planning to collect a small amount from our 3,000 staff members and with that money, we are going to sponsor needy students who require books and other facilities for education. We are also going to help people who are suffering from various diseases. Even over the past couple of years we have donated large sums for health projects. In addition to all this, we make donations for common causes.

Mr. Narangoda, you have a vast experience in the Sri Lankan Banking Sector. As a matter of fact, you spearheaded National Savings Bank as its General Manager/CEO for over five years and during his tenure, NSB was awarded AAA rating by Fitch Ratings for four consecutive years. What motivates you on a day to day basis?

The secret is commitment. My family complains that they were neglected at times because they say that I am married to the bank.

If you look back to 20 years ago, National Savings Bank was like an old-fashioned Post Office. The bank was established in 1975 as it merged with other government institutions and savings banks, and as a result the staff members had a state sector mentality. Most of the staff was from rural areas who did have much knowledge about modern banking. When I joined National Savings Bank it was making losses and was receiving Government subsidies. Then, in 1996 government decided to remove the subsidy. This opened our eyes and we realised we had to stand on our own two feet. Only then did the transformation start. That is why National Savings Bank was recorded with a AAA Rating by Fitch Rating during my tenure of office as Chief Executive Officer.
Back then, the staffs was government employees and they did not have a flair for customer service or marketing. They knew that they would get their salaries and benefits whether they worked or not. So we had to change that mentality. Another thing we did was to give our buildings a facelift and provide them with good technology and a good working environment. We spent lots of money on training programs. In this sense, we made our workers more market and customer-oriented. I went around the country speaking to our employees and telling them about the importance of being loyal to the organisation and the importance of customer service and marketing. It took over 10 years, but we reaped fantastic results. We also introduced good governance policies and good strategic plans to achieve our goals.

You have already left your mark in the Public Banking Sector of Sri Lanka, but, what would you like your legacy to be here in Seylan bank, how would you like to be remembered once you step down, and where would you like to take the brand Seylan Bank?

Whether it is a private sector or a public sector organization it is not a matter. Good governance matters. I want to make Seylan Bank the number one private sector bank in this country. That is my vision. I want to get a double A plus rating before I retire.

What would be your final message to our readers?

We want to share our knowledge with the international community with regards to the miraculous recovery of Seylan Bank after a run, although we are a small country. I invite them to read Our Case Study published in 2010 and I would ask the banks in the US and Western countries to learn from our lessons and turn around their banks in a similar fashion and make no room for future crisis situations.