Enabling a Sustainable ‘New Normal’ in Banking

HNB Chief Executive Officer/ Managing Director, Jonathan Alles

With 35 years worth of banking experience, Hatton National Bank PLC (HNB) Managing Director/CEO, Jonathan Alles is an industry luminary. In addition to his leading role at the Bank, Jonathan also serves as Chairman of HNB Finance Ltd and Acuity Partners (Pvt) Ltd.

He is also the immediate past Chairman/Director of the Lanka Financial Services Bureau Ltd, Lanka Ventures PLC and LVL Energy Fund. He is the Vice Chairman of the Banking, Financial &Insurance Services Group of the Employers’ Federation of Ceylon, and a member of the Sri Lanka Institute of Directors. In November 2018, Jonathan was appointed as the Chairman of Asian Bankers Association 2018-2020. Added to all of the aforementioned, he holds the position of immediate past Chairman of Sri Lanka Banks’ Association (Guarantee) Ltd and Financial Ombudsman Sri Lanka (Guarantee) Limited.

Since taking the reins at HNB, Sri Lanka’s largest and most respected private sector retail bank, Jonathan has spearheaded a remarkable transformation across the entire scope of its operations with a strong focus on leveraging technology to create new paradigms in banking. With the onset of the COVID-19 pandemic, customer demand for seamless, integrated digital banking products and services. Sharing lessons from HNB’s experience, he shared his vision for a sustainable ‘new normal’ in banking.

Mounting Macroeconomic Pressure

As a result of the COVID pandemic, at present, the World Bank projects the Sri Lankan economy to contract between 0.5 – 3% in 2020. This sluggish environment, which was already in a weakened position in 2019, is likely to add further strain on the banking sector.

“While the Government of Sri Lanka is making commendable efforts to revive economic activity, business expansion is likely to be very limited as most companies will require higher working capital support. Ongoing relief measures – moratoriums as well as the possible use of customers’ savings for working capital needs – will also pose liquidity constraints on the sector. There could be a surge in non-performing loans as some customers may fail to revive their businesses within the expected time frame. The fee income of the sector will 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,” Jonathan said.

Sri Lanka’s Resurgence Hinges on Global Factors

Globally, the COVID-19 pandemic is reported to have claimed the lives of nearly 400,000. With efforts to flatten the curve in Sri Lanka having shown preliminary success, the island has joined many other nations in tentatively reopening their economies.

“The loss of life in Sri Lanka and across the world has been tragic, and we are extremely grateful for the quick and decisive action taken by the Sri Lankan Government, public health and defense authorities in order to contain the spread of the virus. The most pressing need now is to continue easing the lockdown in the same systematic and phased manner so that more sections of the economy can gradually resume operations. As much as possible we all have to work together to ensure a swift, but safe return to normalcy so that further disruptions to daily life are minimized. People need to be able to continue to work, learn, and interact if our society is to function. However, to be sustainable, we have to guard against a second wave of infections,” he explained.

With almost one-third of the world’s population entering into lockdown, the global economy has already experienced sharp contractions with many fearing a prolonged economic recession. Some of the world’s largest and most developed economies are among those hardest hit by the pandemic. In many instances, this creates concerns for some of the country’s key exports.

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 the majority of the demand. With COVID-19 spreading at a rapid rate in these parts of the world, the apparel sector is certain to suffer a significant blow until these economies recover.

Tourism and hospitality is another sector dependent on international conditions, which has been severely impacted by the pandemic. Since March, the sector has come to a complete and unprecedented halt, and now faces an extremely uncertain future.

“Given that Tourism and related industries account for an estimated 5% of Sri Lanka’s total labour force and is capable of generating US$ 3.5 billion, it is imperative that every possible measure be taken to support its recovery. At present, the industry is on track to resume operations on a national scale from August 2020. However, this will depend to a large extent on how rapidly international travel restrictions are lifted, how comfortable people are to travel overseas and the impact on the disposable income of travelers due to COVID-19. In the interim, the sector must turn its focus to implementing all Government guidelines, in order to prepare for such a re- opening.”

Responding to the Crisis Proactively

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 introduced a relief package to individuals and sectors of the economy hardest hit by the pandemic. This relief included capital and interest moratorium of up to six months, among other measures.

“These packages served to provide critical assistance at the outset, but the success of these measures are temporary by definition. In order to reinforce their mitigating effect, businesses must not waste any more time in carefully analyzing the entirety of their business model and product or service offering. The market that lies ahead will be even more competitive as those worst impacted struggle to capture a diminishing pool of customers able and willing to spend. While this means challenges, it also creates invaluable opportunities to capture market share for those that are quick to adapt. Hence, for those organisations that are able, it is vital that they carefully strategise how to make the best use of these extra funds and plan not only for the current crisis but also for the recovery that comes after.”

Health and Hygiene will be a Critical Business Imperative

“Naturally the foremost consideration is health, hygiene and safety, and there are a lot of small adjustments that all Sri Lankans must learn to incorporate into daily life as a result. In addressing the crisis, ensuring the health and safety of our staff and customers has been HNB’s utmost priority. 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 curfew was imposed, we continued to operate in curfew and non-curfew areas with skeleton staff, who were provided with all necessary health and safety items in line with the measures prescribed by the health authorities. The rest of the critical staff have been provided with secure facilities to work from home,” Jonathan explained.

Progress Through Digitalization

In addition to consolidating Work From Home protocols and systems for its team, HNB also embarked on a strategy of learning, development and upskilling via online platforms.

“Our employee engagement and development strategy was one of the most notable opportunities to emerge out of the lockdown period. While remote learning and video conferencing was already incorporated into the day-to-day at HNB prior to the pandemic, it was at a lower intensity. With the institution of the lockdown, we saw our team heavily rely on these platforms with great success. These are strategies, which we believe will hold the key to greater success in our industry, but also across every facet of life. This ability to connect with each other from anywhere in order to collaborate on work, or engage in skills development will be among the most impactful trends to emerge from the lockdown,” Jonathan stated.

The Forefront of Customer Centricity

He further noted that customer service was another aspect of banking, which will be irreversibly altered as a result of the pandemic.

“While there was a healthy and growing demand for digital banking and cashless transactions, we recorded a significant increase in customer utilization following the institution of lockdown protocols. For customers, this meant increased usage of debit and credit cards as gateways to e- commerce, as well as greater willingness to migrate to platforms like HNB Solo – our QR-based digital wallet. As a result, HNB was quick to bolster support for merchants looking to establish an e-commerce presence so that they can more effectively compete in a post-COVID landscape.”

According to Jonathan, one of the most critical limiting factors for digital banking in Sri Lanka in the past was a reluctance among some customer segments to migrate to digital platforms and a preference for ‘business-as-usual’.

“While in general Sri Lankans were getting increasingly familiar with digital banking, the pandemic has radically enhanced the willingness of customers to engage in cashless transactions remotely. For those that made the switch, it is unlikely that they will go back. Hence, our priority on digital banking services is to continue optimizing our offerings so that they are more reliable and easy-to-use than ever before.”

“Meanwhile, we are also working with our enterprise and corporate customers to improve their ability to process cashless transactions using our mobile Point-of-Sales, IPG and QR platforms, while also providing them with the tools to market themselves online through AppiGo. Business will always go where customers demand and in a post-COVID economy, this direction is decidedly digital. Naturally, there have been teething problems, but overall, I believe that the potential of e- commerce in Sri Lanka has entered a new paradigm,” Jonathan said.

Consequently, while HNB has maintained its strong emphasis on customer-centricity both with regards to in-person service excellence for clients that visited HNB Customer Service Centers, and remotely through HNB Connect – the Bank’s 24/7 omni-channel customer service center.

Additionally, HNB also utilized its strong customer service capabilities to engage directly with customers, reaching out proactively to individual customers in order to understand their requirements and provide necessary support during the prolonged lockdown. The Bank also set up partnerships to facilitate doorstep delivery of essential items, and cash withdrawals, in addition to deploying mobile self-service machines country- wide during curfew periods so that customers in need of physical cash were also able to meet their needs.

Major Shifts in Established Order to Follow the Pandemic

Current global developments and the strategies developed in response – at national and enterprise level – will undoubtedly be felt for generations to come. However, Jonathan believes that the need for decisive action over the short-term is crucial to avoid even greater economic challenges over the medium-long term.

“In the coming months we anticipate a period of unprecedented global uncertainty as all nations struggle to revive their economies. We are seeing an undeniable shift in the global social, economic and political orders. The short term will be fraught with severe disruptions; we can already see these tensions boiling over in the United States and other major economies today.

Hence moving forward, we need to rigorously seek out new opportunities arising in the market and potential regional partnerships,” Jonathan noted.

In that context, he added that the banking sector would serve an integral role in helping to identify and facilitate local enterprises capable of leveraging on emerging opportunities.

Navigating the New Normal

“As our industry cautiously attempts to navigate this new paradigm, we must also take this moment to stringently re-evaluate our own operations in order to understand what is sustainable for our organizations. The banking sector would have to focus intensely on improving operational efficiency while protecting margins and keeping a tight control on non-performing loans, while also providing customers with as much support as possible in order to ensure that their businesses remain sustainable throughout the crisis. It is equally important that our product portfolio and service delivery are effective in providing meaningful value to our customers, particularly for entrepreneurs and those in the SME, and microfinance sectors. Similarly, all of these customer segments must also exercise their due diligence in order to understand the trends shaping their businesses over the last five years, and how those trends could change in a post-COVID landscape.”

In this regard, Jonathan stated that “Such businesses must carefully consider how investments into non-current assets such as vehicles and property could have been weighed against re-investments into their businesses to build equity, thereby enhancing sustainability and resilience of their enterprises. Such practices would be imperative in ensuring the long-term survival of companies that are over-leveraged today.”

 He added that “Enhancing financial literacy and building capacity in areas such as basic accounting and simple automation are important for the sustainable development of the SME and microfinance sectors. These segments also need to be supported with supply chains which will enable them to pursue opportunities in export markets – a factor which will be critical in increasing Sri Lanka’s foreign exchange revenue.”

As SMEs work towards these milestones, Jonathan noted that the banking sector would need to be supportive – and supported in turn – to ensure that SMEs and entrepreneurs are able to pursue long-term funding for critical investments while continuing support for working capital.

“Given their potential to spark a grassroot economic revival, this is an important area that the authorities should focus on. We at HNB, as always, would continue to support these vital segments of the market and partner the resurgence of our nation,” Jonathan concluded.

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