Seylan Bank’s CEO and MD Kapila Ariyaratne recently joined Daily FT for a brief chat on the performance of the bank, future plans and market trends. The bank as at now holds 11% shares in advances and 10.6% in deposits within the private local commercial bank market in the country.
Q: How has the bank’s performance been so far this year compared with the last?
A: We had a fairly good half year and as announced exceeded what we made the whole of last year with a profit after tax of Rs. 1.02 billion as at end June this year. The bank recorded a revenue growth of 13% and profit before tax and VAT grew by 142% this year over the previous year. This growth has come through the basic core banking areas as opposed to an equity portfolio or Treasury activities.
The basic deposits, lending, trade finance and remittances have all contributed so we feel it is a very sustainable model as Treasury profits tend to fluctuate with the market. We hope to continue the trend going forward.
Q: How have you been keeping with the Strategic Plan the bank formulated last year?
A: Arising from our strategic plan, there was several key focus area that we concentrated on. This includes customer service, internal efficiencies, skill development. We also looked at cost selling and certain market segments we were already strong at. We have a good portfolio of card products which was not marketed aggressively previously which we are currently engaged in doing. We also identified several of our good products we need to tweak and re-launch and did that. We have re-launched our current accounts with benefits while working on ‘Tikiri’ which is already a leading minor accounts brand.
Q: What areas do the bank aggressively focus on for growth?
A: We are working very aggressively on the remittance business. We have been a leading player in that market and with the expectation of growing to Rs. 6 billion we are hoping to secure a significant share of the market. We have invested a lot of time, effort and money on improving our offerings to expatriate workers and that segment. We are also growing our foreign currency funding base, therefore is working closely with correspondents and multilateral agencies on improving our funding structure which will help us in the short term. Furthermore, improving our risk management structure is a key highlight. We believe as we grow fast, a good integrated risk management approach is a must. We have invested on improving our risk management infrastructure and the overall governance structure as well.
Q: There is a proposed issue of subordinated debt of Rs. 2 billion in the pipeline. When will this come in place?
A: We actually hope to raise one billion and to go to Rs. 2 billion if we feel necessary. We hope to complete it by early November.
Q: What do you feel about the Fitch rating of BBB+, which is below the Bank’s Long Term Rating?
A: It has been rated one notch below the usual rating. We are always hopeful that the rates should be better. Fitch has justified the rating and we are aware of certain issues which have built up through legacy matters and things that are holding down the ratings such as the non performing asset ratio.
The non performing asset ration however has improved significantly from a height of 30% at one point to a gross ratio of 14%. Net of interest is just over 12% which is a vast improvement. However we acknowledge that the rate is still high and is hopeful that by the end, it will recover by leaps and bounds.
We have aggressive recovery drives and we are engaging the customers who are willing to reschedule and help them through. Also we are taking strong actions where people are not cooperating. It has started showing results. However we are happy with the rating we received and believe we can work with it.
Q: How is the credit demand as at now?
A: Currently we have a capital adequacy ratio which is nearly 15%. This is not really an issue as the entire capital is in the core capital area. Therefore we have a significant room in our tier two capital which will further improve the capital adequacy. It will also help us meet the strong credit demand, especially to support customers with longer term facilities since many are looking at capacity improvement such as in the tourism sector. Since such facilities are slightly of a long term nature so we wanted to improve our funding balance by getting in longer term funds.
Q: How is the current deposit mobilization?
A: Our focus has been the SME sector and what I would like to call the ‘commercial segment’ rather than the high-end corporates. This has always been Seylan’s trend and will continue to be. That segment has seen fairly good, strong growth and is a segment that gives us good diversity of exposure of credit. This is where our strength lies.
The demand has continued to be strong. However there are CBSL restrictions of 18% and foreign currency funding that we already have which we believe can go higher than the present position. However we have kept a conservative growth rate of 19% and will end the year with 19-20% which is well within the CBSL stipulations.
We have kept our focus on keeping our deposit growth in line to support the stipulations. The market has been highly competitive and rate competitive as well. However with the relationship we have the competitive rates and the good product combination we have offered we have been fairly competitive and seen good growth on both sides of the balance sheet.
Q: What do you anticipate in the future?
A: The growth will continue. Deposits will be more challenging because of competition, liquidity and restrictions of different banks for growth. The credit demand will continue through amidst challenges. We will compete hard and will focus on strengths and in actually giving the customer a good service and a value added overall package.
Q: What of your expansion plans?
A: Currently we have a network of 137 branches and outlets. In the next few months we hope to grow that to 145/148. We have added seven outlets already.
Q: Any new product offerings from the bank?
A: We recently had the ‘Thegi Pita Thegi’ which we thought was a fairly innovative program adding value to our customers. We produced six millionaires and a winner of an Rs.15 million house recently. We are now looking at the continuation of that.
We also just re-launched our current accounts with several added benefits. We have improved our card offerings and are planning to improve several existing products
Q: Your thoughts on the present state of the banking industry?
A: Right now the volatility of the currency and the rising interest rates are the challenges we have to look out for. In view of those, people have to adapt and evolve to keep pace. So we have to watch our portfolios and customers to ensure that quality of the portfolio remains the same which means we have to work closely so that customers are not caught unaware in a competitive environment such as exchange rate rises and price increases/cost increases.
We are geared for that. Right now due to weather conditions there are issues in north, east and north central where we have a strong presence. Our hope is to overcome this with little impact.
Q: How has the growth been in the north and east?
A: North, east growth has been very good. It has been an area which is slow and steady but we have been large net lenders there. As at end June, our advances portfolio has doubled and our deposits portfolio. We have infused net capital into the area which has been our strategy and it has worked well. We hope with the areas picking up more the relationships we have built will help us be more active and profitable.
Q: What are your forecasts for the year in terms of the bank?
A: We have already exceeded last year’s bottom line and we hope to continue the trend and keep on a similar growth rate by the end of the year. Focus areas are that we are working a lot harder on is the overseas channels to improve remittances. We have several new tie ups we hope to offer in the near future and have introduced our own remittances products as well. Then managing and reducing non-performing assets.