HNB’s Alles: “Banking sector must revisit operating models to remain sustainable”

• Easing lockdowns must be done in a controlled and phased out manner
• Global factors will have a strong influence on Sri Lanka’s resurgence
• The banking sector will face a new normal after the crisis, making it essential to revisit operating models to remain sustainable

The global pandemic has claimed the lives of thousands of people across the world and it could cost us many more in the next weeks and months. Amid this backdrop, we are extremely grateful to the government of Sri Lanka and relevant authorities for their continuous efforts in protecting the people. 

The government is working on a plan to exit the lockdown so that economic activities – which are at a near-standstill – could re-commence. However, to prevent a second wave of the epidemic, it is important that this is done in a controlled and phased out manner, ensuring that all health safety measures are in place.

Sri Lanka’s resurgence hinges on global factors

With the global economy projected to go into recession, the recovery of the global economy would also play a part in the economic resurgence of Sri Lanka. 

For example, the tourism sector of Sri Lanka – which was hit by the Easter attacks a year ago – was just beginning to indicate signs of recovery in early 2020. Currently, the sector is at a complete halt, and its recovery depends on the success of the measures taken by Sri Lanka and other countries to arrest the situation and how fast international travel restrictions are lifted.

The apparel sector, which accounts for nearly 45% of the exports of Sri Lanka, initially suffered a supply shortage with China being locked down. Europe and the United States, meanwhile, account for majority of the demand. With the rate of COVID-19 infection in these parts of the world, the apparel sector is certain to suffer a significant blow until these economies recover. 

Economic growth in Sri Lanka has been sluggish over the last couple of years. Many industries, especially the small and medium enterprise (SME) sector, have suffered heavily. With the lockdown halting almost all activity in the country, business entities as well as self-employed individuals have lost their sources of income. In light of this, the government of Sri Lanka has introduced a relief package to affected parties, which includes a capital and interest moratorium up to six months, among other measures. However, the success would also depend on how fast industries adapt to capture new opportunities arising in the market.

Responding to the crisis proactively

In addressing the crisis, ensuring the health and safety of our staff and customers has been the utmost priority of Hatton National Bank (HNB). We proactively set up a special committee to assist our staff as early as January 2020. In mid-March, when the pandemic hit our country and a curfew was imposed, we had a two-pronged approach towards staff. We have continued to operate in curfew and non-curfew areas with skeleton staff, who are provided with all necessary items (e.g. face masks, gloves, sanitisers as well as transport) in line with measures prescribed by health authorities. The rest of the staff are working from home. While some key staff operating from home already had the facilities to do so, the bank provided the necessary facilities to other critical staff members within a short period of time. 

Apart from health and safety measures, HNB has adopted a strategy of upskilling and developing staff through online systems and our cloud-based training platform during this crisis situation. Important meetings are carried out through online systems as well.

For our customers, in addition to opening branches, we continue to educate and assist them in using our digital platforms for transactions. Our call centre also continues to operate 24/7 to support our customers. Our digital product range – which covers mobile point-of-sale as well as IPG-based and QR-based payments – supports the government’s social distancing initiative in delivering essential items to people’s doorsteps. Mobile self-service machines have been deployed country-wide within curfew times enabling people to carry out their transactions. Furthermore, HNB is proactively calling customers to understand their financial requirements to provide necessary support in this time of need. 

Pressure mounts for the banking sector

While the World Bank projects the Sri Lankan economy to contract between 0.5% to 3% in 2020, the sluggish environment would further strain the banking sector. Despite the Central Bank of Sri Lanka’s efforts to revive economic activity, business expansion would be very limited, as most companies would require higher working capital support. Ongoing relief measures – moratoriums as well as the possible use of customers’ savings for working capital needs – would also pose liquidity constraints on the sector. 

We could also see a further increase in non-performing loans as some customers may fail to revive their businesses within the expected time frame, thus requiring higher impairment provisions. The fee income of the sector would also be affected to a large extent, due to restrictions on imports, lack of demand for export goods, lower worker remittances and the removal of certain fees as part of relief measures. 

Adapting to the new normal

The bank and the entire sector will emerge from this crisis with a new normal, thus it is essential for the sector to revisit operating models to remain sustainable. Working from home as well as online meetings and trainings would form part of new ways of operating. Businesses would invest more in digital platforms, payment systems and channels as the world moves towards a cashless environment. Investments planned in robotic process automation, improving processes and productivity will also continue. 

We recognise these developments, which is why HNB will focus on re-assessing our business priorities as well as our operating model. Upgrading our systems and processes would continue to be a key priority in order to intensify our focus on improving our digital channels and platforms.

Jonathan Alles is the CEO and Managing Director of Hatton National Bank headquartered in Sri Lanka