Sampath Bank takeover: A golden opportunity missed due to communal mindsets

Saturday, 16 January 2021 00:10 -     - {{hitsCtrl.values.hits}}

Many people involved in the negotiations seemed to consider HNB as a ‘Tamil bank’. Thus any potential take-over of Sampath was suddenly viewed through the lens of communal division. The idea of creating a regional powerhouse was now framed as a hostile acquisition of a ‘Sinhala’ bank by a ‘Tamil’ bank. The well had been poisoned


By Rienzie Wijetilleke and Kusum Wijetilleke


There was a period in the late ’80s and early ’90s when Sri Lanka’s banking sector was beginning to expand its correspondent relationships around the world and strengthening these relationships through carefully-structured facilities was critical. 

As CEO of HNB, I was obliged to meet officials and counterparts of various banks around the world in order to negotiate our institutional relationships and thus expand and facilitate the growing import/ export industry as well as finalising credit lines to Sri Lanka. 

On quite a number of occasions, I sat for meetings in the UK and in various parts of Europe with heads of some of the leading banks in that region. We would discuss Sri Lanka and its economy, politics, the threat of terrorism whilst also working out trade products and negotiating funding lines.

Every so often, I would hear remarks from the British and the Europeans regarding the size of our balance sheet. They would jokingly ask whether there are any zeroes missing from our balance sheet, implying that HNB was not of an adequate size to be considered a major financial player internationally. 



A Sri Lankan regional financial force

When I studied the local industry at the time, it became apparent that culturally, the banking industry had an issue. The State owned and controlled banks such as BOC and People’s Bank had a major advantage due to their large deposit base and State backing, yet their loan portfolio was much weaker, mainly due to lending to State-Owned Enterprises. At that time, due to State ownership, these banks viewed risk differently to private commercial banks. 

HNB was lending to a myriad of industries which were in their infancy but with a much smaller deposit base. Many of the private commercial banks had the necessary expertise to lend to large projects and new industries, but the institutions themselves were not large enough to participate in some of these transactions. This meant that a lot of the lending had to be syndicated with a foreign bank as well as with a State bank. 

Thus it became clear that HNB would have to grow its funding base in order to really compete against the State banks and eventually against foreign banks in the region. Over many decades, Sri Lanka’s banking sector had evolved into a stable industry with an equally effective regulator and sound policy management. There was no reason why Sri Lanka’s finance industry could not find success in markets such as India, Pakistan, Bangladesh, Vietnam and Cambodia. My dream was that HNB would grow into a truly regional powerhouse, but this would require consolidation within the Sri Lankan industry to create a financial force that could compete regionally with a balance sheet large enough to entice investors.

HNB needed to buy over a competitor and perhaps through an amalgamated entity, try to enter foreign markets at least with basic financial products before expanding into infrastructure funding and investment banking. If we could start small and get our foot in the door in countries like Bangladesh and Vietnam, this Sri Lankan financial giant could open itself up to new opportunities in markets spread throughout the burgeoning South East Asian region. As CEO of HNB, I had already overseen the purchase of the local branches of IndoSuez, Emirates Bank and Habib Bank and thus had the necessary confidence to oversee a larger, more meaningful acquisition/merger. 

I engaged a few trusted advisors and we decided on presenting some preliminary numbers to key Board members in private meetings. I had anticipated and received the unqualified support of the Chairman, the late Chrishantha Cooray and Director and one of its major shareholders, Harry Jayawardena (DHSJ). 

As Chairman, Cooray had always supported me, he was a thorough gentleman and always kept the organisation’s best interests at heart. In DHSJ, I was always assured of the steadfast support of the country’s pre-eminent businessman and industrialist, someone that shared my vision. 

One sticking point was the need to raise fresh capital to partly finance the take-over. Cooray’s shareholding interest through Brown and Co. was unable to raise significant capital, however DHSJ was ready and willing to infuse the necessary capital. As CEO I had to walk a fine line, as both Cooray and DHSJ were dear friends of mine and at Cooray’s request, I had to agree not to take any action that might lead to a dilution of Brown and Co’s share-ownership. 

 

Insecurity of the regulator

Furthermore, many within the regulator were very much against what they perceived as an attempt by myself to promote individual ownership and domination of the banking industry in Sri Lanka. Personally, this was not a consideration for me, as I was responsible for the bank; a merger or acquisition was very much in the best interests of the organisation. However given the sensitivity of the situation on all sides, I needed to be extremely tactful. 

It seemed obvious to me that the regulator was willing to forego international expansion to restrict individual domination of the industry and prevent a concentration of power. However I was of the view that a consolidation would not only align with HNB’s vision, but was undoubtedly in the national interest. 

Despite some reticence by members of the Board and senior management, I received the green light to do whatever needed to merge with or acquire Sampath Bank, even if it was interpreted as a hostile takeover. We opted for Sampath because of the enormous potential it showed at that time. I admired some of their senior management and indeed I even counted as friends some amongst their directorate, however our vision was more important than personal relationships. HNB had an opportunity and the entire country and economy would benefit from a consolidation which would have been unprecedented in Sri Lanka.

At the time, it was my expectation that the regulatory authority would have backed the creation of a Sri Lankan regional financial entity, given the obvious advantages it would bring to Sri Lanka. However, during the initial negotiations, it became apparent that Sri Lanka’s communal divisions had poisoned the hearts and minds of so many Sri Lankans: there was resistance from unexpected quarters.



Communal divisions come to the fore

Hatton National Bank, with its roots in the hill-country town of Hatton, was initially known to be a bank that served the plantation industry. Over the years, through the efforts of many, we successfully shed this image and created a new one. HNB came to be known as a ‘Partner in Progress’ to all Sri Lankans and one of the things I am most proud of from my time as CEO was the Gami Pubuduwa scheme which was targeted at Sri Lankans around the country living outside urban areas, to provide them with lines of credit that were sorely lacking.

I was also proud that HNB, especially during the mid-’90s, had hired some of Sri Lanka’s brightest sportsmen and women, especially cricketers, both household names and up and coming youngsters with enormous potential. At HNB we celebrated all cultures and we would not spare any expense for Bakthi Gee and Christmas events for staff. HNB had become a truly multicultural organisation. 

To my surprise and utter disappointment, many people involved in the negotiations and perhaps some senior members of the Sampath Bank Board and certainly many members of the staff unions, seemed to consider HNB as a ‘Tamil bank’. Thus any potential take-over of Sampath was suddenly viewed through the lens of communal division. The idea of creating a regional powerhouse was now framed as a hostile acquisition of a ‘Sinhala’ bank by a ‘Tamil’ bank.



Personal attacks and posters

During the coming months, some enterprising members of the Sampath Bank Union began printing ‘kalapathara’ (posters) making various allegations about HNB, its Directors and its management, myself included. HNB’s attempted takeover of Sampath was seen as part of a movement to dilute the Sinhalese culture, and I was viewed as the foremost villain in this story; the Sinhala Buddhist CEO who was selling his people out. 

There were various threats issued to myself and my family. The Board of Directors at HNB was so concerned that they arranged a special security detail for me. We had to shuffle some of the staff that were working under me due to allegations that they were involved. I had to warn my wife that only specific staff would be allowed to enter my residence.

On many evenings we received phone calls, with a variety of threats made against me personally and against my family, some of the language used I dare not repeat. On one occasion my youngest son, who was barely a teenager at the time, had answered the telephone when my wife and I were not in the house. He conveyed to us that a man had called asking for me had then proceeded to scold my son in filth and warn him that his father’s limbs would be broken soon. 

Senior officials of the Central Bank would call me at odd hours and we would discuss the move at length. The accusation was that HNB was trying to take-over the banking industry, but I kept repeating that we were trying to consolidate, not dominate. Many at the CBSL were worried about monopolies and I sensed they had been listening to other industry professionals who were against potential domination of the industry by HNB. I can state as fact that I know of some very prominent bankers who despite seeing the obvious advantages, did not want to see HNB succeed in this venture. 



The dream that died

As the war went from bad to worse, with bombs striking in the business district in Colombo and the Government of Sri Lanka not having adequate means to respond, the temperature was starting to increase. The pressures were immense, the negative publicity around the merger/acquisition plus my additional responsibilities were starting to take its toll and I could not in good conscience endanger my family any further. Whilst I had the support of most of the Directorate at HNB, I realised that politically, the transaction would be painted by the communal narrative; the well had been poisoned. 

As I think back, the idea to build a major regional financial player would most certainly have succeeded and the rewards would have been handsome. Take the example of Ishara Nanayakkara and the recent $ 600 m transaction involving the sale of shares in his Cambodian finance company, PRASAC. LOLC and Nanayakkara are reaping the rewards of taking a long-term view and diversifying into frontier markets with immense growth potential. 

In the ’90s, South East Asia and the Asian region as a whole was on the cusp of an economic boom. Young economies such as Vietnam and Bangladesh were starting to get organised and open up for trade and investment. An entity with the expertise of HNB and Sampath Bank with a large balance sheet would have taken a foothold in many of these markets and would have enjoyed a stake in their shared prosperity. 

Unfortunately, small minds prevailed and Sri Lanka’s communal divisions would continue to dictate the country’s policies and initiatives, it might be argued that this sorry state of affairs still continues to this day.


(Rienzie Wijetilleke can be reached via rienzietwij@gmail.com. Kusum Wijetilleke can be reached via kusumw@gmail.com.)


 

COMMENTS