DFCC Bank’s new CEO Lakshman Silva examines the transition of development lending institutions and the state of the industry
By Darshana Abayasingha
Development banking is not fading from the world, but instead it is evolving, insists Lakshman Silva, the new Chief Executive Officer of DFCC Bank PLC. With the infusion of commercial banking and related services including investment banking, Silva affirms that the DFCC Group sees great potential for its future and that he hopes to get the best out of its resource to realise its objectives. With a career spanning over three decades in the banking and financial services sector, Lakshman Silva took over as CEO last month with a vision to see DFCC become a dynamic and frontline commercial bank in the country serving all segments of the market.
Silva previously served as Chief Operating Officer of DFCC Vardhana Bank, before taking over as its CEO in 2010. Following the merger of DFCC Bank and DFCC Vardhana Bank, he functioned as Deputy Chief Executive of the Group up until the new appointment.
Explaining the transition of development banks in the region over the years, Silva points out that with the growth of the profile of its clientele, those who required different or more transaction services tended to move out to commercial banks. In addition, as traditional commercial banks begun providing long-term facilities to customers the importance of development banks had somewhat dwindled. Accordingly, many development banks in the region had forayed into commercial banking to grow its portfolio of services. However, institutions like DFCC still holds development finance at its core despite its growing presence in the commercial banking sector Silva avers, pointing out that current government initiatives and Central Bank projections consider development banking as essential. DFCC is the only bank with this specialty in the country, he adds.
“I am excited to be taking over in my new role as Chief Executive of this prestigious institution, partly because I have been part of its progress and transition over the last 30 years. We took over a commercial bank and transforming DFCC into a commercial model was a great challenge. But we have merged the two after a decade and brought the different cultures together, which is a great thing. My predecessors provided great leadership to enable that transformation, and now it is time for me to drive this to a larger scale,” Silva avers.
Following his accession to the new role, Silva also paid tribute to past General Managers and CEOs who had mentored him on his journey including Moksevi Prelis who he describes as a strategist and gave DFCC the leadership and direction to break out of its traditional development banking mould with ventures such as Lanka Industrial Estate and the Namal Fund. Then Nihal Fonseka was key in taking DFCC through to its commercial banking era, giving Silva responsibility and mentorship in this new arena. They provided him the necessary tools to become a good development project lender, and then an overall banker, he adds, noting that to be successful in the financial services sector one cannot afford specialise in only area.
“It’s not an easy process to evolve from a fully-fledged development bank to a commercial bank. For instance, as a development bank there are certain privileges and concessions that you enjoy, alongside the disadvantages. We had the opportunity of enjoying credit lines and concessionary funding that came our way and benefits which we could translate to customers. When you become a commercial bank those privileges no longer exist. You are regulated by the financial services act and you are measured equally with other commercial banks. So, our model presents some major challenges, including the transformation of all our internal and external stakeholders into the commercial banking mould, and even to date we have a big challenge of getting our customers to believe we are a commercial bank,” he remarks.
Commenting on the industry and consolidation which has been discussed for a period, Silva believes change is for the better and is a proponent of the proposed alliances in the sector. Too many institutions are trying to cater to a limited market diluting resources, thus, consolidation should be pursued for the good of the sector – provided the interests of shareholders and stakeholders are not compromised he says. With respect to financial services and facilities, he agrees that many customers in the lower Small and Medium enterprise segment cannot differentiate between consumption and investment spend as they are largely outside the formal sector. This spectacle is also somewhat prevalent in the upper and middle SME sector – especially private owned enterprises – with divestment of investment capital and funding into unrelated areas resulting in issues. Silva believes this is partly due to some customers being ill-advised on spend potential and projections, whilst others are averse to getting into the formal accounting and tax system. The public should be provided with a better basis to voluntarily make payments and declarations, he feels, without the existing hassle. The government should also provide those who contribute with some benefits in recognition of their contribution, he adds, conceding that this is a matter of national policy.
In addition, Silva comments that it is a challenging time for the banking sector in Sri Lanka due to changes in operations. Achieving a healthy current and savings account ratio over other liabilities is difficult for a new commercial bank in today’s interest rate context, which are not at all very attractive. As a result, even though banks try to inculcate the savings habit people still tend to go for short-term deposits. In addition, the financial trade sector in the country is adopting BASEL 3, which whilst progressive also sets several challenges for some organisations, especially when simultaneously transferring accounting standards to IFRS9. Thus, this becomes a challenging time to go before the shareholders and ask for more funds when returns are not proportional, he adds. However, Sri Lanka presents the most advanced banking and financial services sector in the region, Silva says, asserting that we are far ahead in almost every sphere. With its current regulations, Sri Lanka can easily emerge into a financial services hub as espoused by the government, like what Singapore has achieved who begun their accession on a similar basis. It is the vision and commitment we require from government to achieve this.
“To take this industry to the next level we need consistent policy, and the direction and encouragement given by the Central Bank and the government should be on a long-term basis. When you look at tax policies introduced by different regimes – they do not provide that comfort. The banking community has contributed a lot in terms of collecting revenue for the government in way of taxes and other payments. Due recognition should be given to that and provide stable, consistent economic and tax policy,” Silva states.
Technology plays a significant role in modern-day banking and will be the decisive factor into the future, he adds, noting that DFCC Bank notched many technological firsts in the local industry. DFCC was the first to launch the virtual wallet to the market, whilst it was also the first bank to join hands with another commercial bank for a common ATM platform and credit cards, and do away with certificates for term deposits. DFCC will delve deeper with technology he adds through innovative ‘fintech’ solutions, alongside the progressive measures promoted by the Central Bank of Sri Lanka. Duplicating things is not the way forward for the banking community, and instead it must move towards doing things on common platforms which will drive the cost of operations downs. Traditionally, Sri Lankans are comfortable and believe if a transaction needs to be done they must physically visit a branch – and enabling newer technology solutions entails a process to change mindsets and moulds.
“In most parts of the Western Province and Colombo, I agree there has been a transformation. But if you look at internet penetration in Sri Lanka it is still very low. There has been improvement, but as a country we cannot be happy of what we have really achieved. When you consider the periphery, although mobile penetration is very high – they use it primarily for voice and data. The vast majority of our customers still haven’t come to terms with using an application for banking transactions. Even if they do a banking transaction on an application, they still choose to physically visit the bank to make sure it has happened. We need to build trust with technology for it to grow. Education on financial services needs to improve. Banks have gone and set up the brick and mortar facilities, but I think we all realise and agree that with margins becoming thinner we cannot sustain that effort. Therefore, technology presents the way forward to us and all other sectors, and at DFCC we are looking out for ways to do things differently,” Silva concludes.