The 2018 Budget proposals have given the banking sector new opportunities, said Lakshman Silva, Chief Executive Officer of DFCC Bank PLC. Speaking to ‘Daily News Business’, he said that the Budget is not for short-term gain but has focused on the future with a long-term plan - strategies centred on economic potential (ocean-related activities), environmentally sustainable strategic initiatives and entrepreneurship. From a banking point of view, the Government is giving concessions for incubators, IT development. Start-ups and creation of one million jobs which will give opportunities for the banking sector to lend more. Asked to comment on the special levy on total transactions made through banks, where 20 cents has to be contributed for every Rs. 1,000 transaction, for a period of three years, he said that more clarity is needed in this area. “The banking sector needs an easy methodology when executing this, as all systems have to be re-programmed to accommodate these kind of regulations.”
“When the new Inland Revenue withholding tax was introduced, all banks implemented it properly as the methodology was simple and understandable. We expect similar a simplified system for this special levy as well. We will extend our fullest support to the Government, however we request an easy methodology to implement it,” Silva said.
Q: How do you see the banking sector and its penetration in rural areas?
A: I feel that although urban Sri Lanka has been getting access to, and avails itself of banking services at a rising rate, there is still a portion of the population that remains unbanked. Though consumers need access to banking for savings, loans and microfinance, they do not have bank accounts for reasons such as limited access to banks, especially in the remote areas, poor financial literacy, lack of steady or substantial income or psychological factors such as mistrust of financial institutions.
Most customers in these areas prefer to do their banking by physically visiting a Bank due to psychological factors. They still prefer traditional banking methods rather than electronic banking. Having said that Bank’s need to understand their requirements and adopt innovative models to serve them, also focusing on financial awareness and education.
In my opinion, collaborating with telecom players, adding mobile channels and utilizing cross selling opportunities will go a long way in meeting the needs of the unbanked. Mobile banking is taking off in a big way as more and more consumers are using smartphones, and it is also a cost effective option for Banks. Similarly, post offices, which constitute a large part of the country’s infrastructure provides an innovative POS alternative to reach out to the unbanked. Other forms of branchless banking and e-payment gateways such as payment cards and the internet can also help banks increase their outreach; plastic card technology is presenting the banking industry with an important means of tapping the unbanked market.
Today, we see more and more people embracing online translations on POS machines and this is taking Sri Lanka towards a cashless society. Sometime ago customers would only withdraw from their own bank ATM and today this is being extended for withdrawals from other ATMs as well.
At DFCC Bank, we are focused on advancing financial inclusion and possess a blend of channels including the traditional brick and mortar structures and outreach through Sri Lanka Postal Units. Furthermore we are also focusing on expanding our alternate channels utilizing the latest technology, and have launched several products in the recent past including the Vardhana Virtual Wallet, Lanka Money Transfer and MTeller.
Technology is driving the industry forward and I am happy to note that DFCC, along with other banks, is heading in the right direction.
Q: How does DFCC interact with the SME sector?
A: DFCC Bank has a strong reputation for assisting the SME sector since its inception in 1955. It also has the distinction of being the first bank in Sri Lanka to set up a separate department for financing the small and medium business sector as early as 1978. When this department was set up the goal was to jumpstart and develop the country’s small and medium industrial base as well as the agricultural base but since then we’ve come a long way. We have provided capital growth to a number of clients especially during their early and risky start up stages and as a result they have been able to successfully grow their businesses within Sri Lankan borders and also expand business overseas.
We not only provide financial services but adopt a more holistic approach also providing entrepreneurs with the necessary knowledge to take their business to the next level. Thus, we conduct skills development programmes and we have dedicated officers and managers that provide continuous monitoring and guidance to ensure stable and continuous growth.
Last year, we were also one of the first Bank’s to set up a special MSME unit to address the needs of Small Business Enterprises (SBE). SBE refers to enterprises positioned between SMEs and informal micro enterprises and are sometimes referred to as the ‘missing middle’ since the financial requirements are too detailed for most microfinance institutions, and they are considered too risky or costly for traditional commercial banks. The unit provides a range of financial solutions under the brand name ‘Vardhana Sahaya’ and is a one-stop-solution for small enterprises.
Q: How do you see the HR potential for the banking sector?
A: I think there is great HR potential for the banking sector as it becomes more driven by technology and is considered a more stable sector to be working in. Three decades ago if a bank placed an advertisement for recruitment, it would get filled up very easily. But after 1990 it was a bit tough as the ICT sector got priority from youth as there was a huge attraction to it.
At DFCC, we look for passionate individuals who are not only creative and have the right set of technical skills and experience, but who demonstrate other attributes such as confidence, commitment, accountability, personality and drive. Upon finding the ‘right fit’ we continue to help them to grow by providing structured and non-structured learning opportunities, keeping them focused by providing a clear sense of purpose and a great working environment. Enabling our staff to grow is of paramount importance and focusing on these aspects we have been able to build a flexible and resilient organisation over the years.
Q: What would you attribute as key pillars for your financial success?
A: Our deposits have grown by 33% from January to September this year when the industry average is around 20- 22% and we have done well with regard to other private sector banks. If you look at our co-capital ratios under the Basel III requirements we are above the minimum total capital ratios threshold as required by the Central Bank. In profitability growth too, compared to last year, we have posted profit after tax of Rs. 3.4 billion which is a reasonable growth compared to last year.
DFCC Bank recorded growth across all its income segments, with a 31% increase in operating income year-on-year. The Bank’s net interest income rose by 32%, to Rs. 8,228 million buoyed by improvements to the net interest margin from 3.3% in December 2016 to 3.6% by September 2017. In addition, the Bank’s net fee and commission income grew by 17% to Rs. 1,110 million complemented by the growth in business volumes.
The Bank augmented its total assets by Rs. 32,568 million (11%) and reported a 31% growth in profit before tax of Rs. 4,341 million and a 35% growth in profit after tax of Rs. 3,418 million, despite a backdrop of higher taxes, volatile interest rates, tight margins and intensifying competition.
The Group closed nine months as at end September 2017, with a 24% year-on-year growth in profit before tax of Rs. 4,377 million. Group profit after tax (PAT) for 3Q declined by Rs. 525 million against the 3Q of 2016. This is mainly due to the Bank’s higher impairment provision and increased cost due to expansion. However, over the 9-month period, the Group recorded a consolidated PAT growth of 26% amounting to Rs. 3,391 million.
The rapid loan portfolio growth to Rs. 202,676 million by end September 2017 was outshone by the 33% (Rs. 46,657 million) year to date deposit growth, which swelled total deposits to Rs. 187,171 million by end September 2017. The Bank’s low cost deposits (CASA) increased by Rs. 5 billion during the 3rd quarter bringing the CASA ratio to 17% from 16% in June 2017. This growth in particular was an outcome from the various initiatives launched by the Bank during the year, to grow this segment of deposits.
Q: How well are local banks insulated against cyber-attacks?
A: I think that Sri Lanka’s banking sector is very advanced in this area in comparison to the region as most banks have taken tough measures. Though there are firewalls and other precautionary measures, there still can be issues and DFCC along with its peers are addressing this to protect our customers to a great extent from cyber-attacks. The regulator too has recommended some key suggestions for implementation which Banks in the industry are strictly adhering to.
Q: What are the expansion plans?
A: One of the main areas of focus will be rapidly expanding our footprint and alternate channels across the country. We currently have 138 branches with a strong presence in the North and East. This includes 101 fully-fledged branches and 37 service units which are set to be upgraded further.
The importance of project lending will remain a priority as well, as this is our forte. However, we will also aggressively focus on diversifying our retail banking portfolio. We already have a range of personal financial services and will be expanding our credit card operations in the near future. In doing so, we will look at developing innovative product solutions backed by the latest technology with a view to providing our customers with the best possible service.
We will also be focusing on international markets to provide consultancy and management services as the bank’s credentials has already been established overseas, so we will definitely be looking at pursuing assignments aggressively.
Throughout our operations, we will continue to focus on building sustainable relationships with our customers, by providing innovative and customized solutions, capitalizing on our core strengths and leveraging synergies across our main businesses.
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