Setting the stage for a new paradigm in banking with HNB

HNB CEO Jonathan Alles

Q: To begin with, could you describe the current positioning of HNB within the banking industry and the impact of that position in terms of bank’s more recent performance?

A: In terms of our current position, HNB continues to command respect within our industry and the country as a whole. Our legacy as one of the best banks in Sri Lanka is a product of consistent refinement and innovation in terms of our product portfolio and service delivery, complemented by a substantial emphasis on the integration of cutting-edge technology. These are a few of the factors which have helped HNB to hold the trust and confidence of our valued customers and stakeholders in the past. 

The success of our approach has been amply demonstrated by our financial performance over the years, most recently in the form of our results for the first half of 2016. During this time, HNB Group was able drive a 54% Year-on-Year (YoY) increase to its profit after tax which rose to Rs. 7 billion despite the relatively low levels of credit growth witnessed during the first half of this year. This strong performance was on the back of 2015’s outstanding results where we were able to cross Rs. 10 billion in profits during the year – the highest on record for the bank. 

Diligent management of fundamentals is another crucial aspect of HNB’s continuing success. The composition of our loan book – which is primarily comprised of variable rate loans –enabled the bank to improve its interest margins through re-pricing while our cost-income ratio was cut by nearly 300 bps YoY to 45.2%. Considering that we were able to significantly revise staff salaries during this time, our reduction in costs stands out as one of several clear examples of the kind of efficiency gains that HNB has already been able to enable through careful strategic planning and execution. 

Similarly, our Non-performing assets ratio dropped to just 2.25%, providing an indication as to the magnitude of success we have achieved in terms of asset quality management. All of these achievements have translated into superior rates of return with respect to Return on Equity and Return on Assets which stood at 19.4% and 1.7% respectively. 

While we are greatly encouraged by these results, we also remain cognisant of our need to always look to the future. In many ways, 2016 has been a watershed year for the bank with respect to the re-alignment our people and processes in order to become Sri Lanka’s first truly future-ready bank. In that context, we can confidently state that there are many more exciting developments in store for HNB that will help to significantly enhance our value to investors while also creating the momentum necessary to achieve our long-term vision. 

Q: You’ve stated that technology will play an important role in your new vision for HNB. What are some examples of this type of development so far and what can we expect in future? 

A: HNB has always been on the frontlines in terms of technology. Wherever we have been able to identify a tangible benefits to the early adoption of new technologies, we have aggressively pursued such opportunities and in most if not all cases, HNB has always been the first to introduce such innovations to the domestic market. 

Among the most recent examples of our pioneering attitude towards technological augmentation of our products and services was when the Bank upgraded its electronic banking proposition. This has enabled distributor and supplier financing facilities as well as online trade financing and payment and cash management facilities for corporates as well as SMEs amongst other value added services. 

Moving closer to the cutting-edge, we were the first to introduce an Augmented Reality mobile app to Sri Lanka that allows customers to quickly and conveniently get up-to-date on our products, services and special offers and assistance finding the nearest HNB branch or ATM. 

Similarly we were also the first to introduce our New World Banking Virtual Reality Experience utilising the latest Oculus Rift technology, potentially allowing our customers to step into a virtual HNB bank wherever they are in the world. 

In addition to its potential to directly improve customer experiences, new technology also holds the potential for corporate and enterprise-level applications as well. In this area too, we have been working closely with our internal teams and external partners to develop products that can help move Sri Lanka towards a more sophisticated digital payment ecosystem. For example: our mobile Point of Sales system Momo are paving the way for a new crop of entrepreneurs to freely and affordably transact with debit and credit cards.      

Between the well-spring of content, products, services and ideas facilitated by the internet and the pervasive influence of increasingly sophisticated wireless, mobile, augmented and virtual reality technologies, we have been afforded a truly unprecedented opportunity to forge stronger, more personalised relationships with our valued customers. Today we can confidently state that the potential for technology to revolutionise our business has never been greater. Our goal is to be at the vanguard of this technological revolution. 

Q: How important is the human element towards reaching the goals that you have set out? 

A: Undoubtedly, the success of our plans for HNB will be decided by how effectively we implement them and ultimately, this is a challenge of human resources. We need to ensure that we have the best people in all key positions and we need to ensure that they are passionate and motivated. We have already made excellent progress in building a high-performance team of young, qualified, and highly motivated people that we are confident will be able to drive the next phase of growth for HNB. 

We can see the impact of these initiatives already starting to take hold. Our team is working with a lot of imagination and drive in order to engage, communicate and effectively contribute towards the vision of our organisation. Significant efforts are being channelled towards providing our team with the training and skills development required to build competencies in their respective verticals. We have also implemented an aggressive succession plan which is focused around developing our existing talent pool in order to groom the next generation of leaders for HNB. 

Moving beyond standardised training and development programmes, we are also working to develop an approach that focuses on talent management. In this manner we aim to ensure that each member of the HNB team – from my own position as CEO and below – clearly understands our vision and possesses the required capacity to effectively achieve their deliverables. 

Incentive naturally plays an important role in this endeavour and for our part, we have strived to ensure that our team is counted as being among the highest rewarded in the industry – with strong performers being rewarded well above industry standards – while similar efforts are also made to develop sales incentive programmes while opportunities are also afforded to staff members to receive mentoring and coaching from seniors within the group. 

Q: What are the main dynamics driving the type of changes that you have described at HNB?

A: HNB is one of Sri Lanka’s oldest and most trusted banks. As such our development is fundamentally linked to the development of the Sri Lankan economy as a whole. When we first established operations, the Sri Lankan economy almost completely focused on agriculture and plantations. 

In the century that has since passed, the face of the Sri Lankan economy has changed at practically every level to the point where today, it is the services and industrial sectors that provide the largest contribution to national GDP. In that context, we believe that technology sophistication and service delivery excellence will be the two primary differentiating factors for our industry in future. 

Hence it is imperative that HNB too must now change and adapt in order to ensure that we don’t just survive, but instead serve as a catalyst for growth and development across all sectors. Therefore it is no longer enough to focus only on consolidating our market share through incremental steps and carrying on with a ‘business as usual’ attitude. 

The initiatives that we have embarked upon today are intended to lay a foundation for a radically different approach to banking that will place the customer at the very centre of our operations, enabling them to reach out through any channel they wish to conveniently and intuitively acquire the banking products, services and advise they need to achieve their own goals in life. Our task is to manage this transition and position HNB to be the preferred partner in that journey. 

Q: From a macro-economic perspective, what are some of the main challenges to achieving your vision and what steps could be taken to mitigate them? 

A: Certainly there are many domestic issues that need to be resolved, and of course at a higher level there will always be factors in the global economy that will be out of anyone’s control that could create substantial downside risks for the Sri Lankan economy. 

From a local perspective, there have been many issues related to management of budget deficits, the profitability of state-owned enterprises and development within the Small-Medium Enterprises sector (SME) that require urgent attention. We need to be decisive and consistent in the formation and implementation of public policy in order to build confidence in the national economy. 

But the good news is that the Government has been able to get the ball rolling on some of these fronts and as we work towards our common goal of developing the Sri Lankan economy in a sustainable manner, there are many low-hanging fruits that we can target to help us achieve our ultimate goals. 

The Government and its officials have repeatedly emphasised the need to broad base our tax revenue and bring in new tax streams. We believe this is an issue of utmost importance as it would enable the Government to ease the burden that is placed on its more traditional sources of tax revenue, which in turn would spur more growth and help to build opportunity for a wider cross section of the Sri Lankan population. 

Parallel to such efforts, I would also call upon the Government to continue with its highly commendable efforts to reign in good governance and streamline the bureaucratic process. Additionally we need to focus much more on building productivity across every sector of our economy. This is something that the Government also regularly reiterates and we would encourage all stakeholders of the Sri Lankan economy to seriously consider methods through which we could achieve substantial productivity gains in future. 

Another factor of fundamental importance to this endeavour will naturally be the creation of more avenues for Sri Lanka’s youth gain access to quality education that will help to equip them with the skills they need to participate in an economy that will be dominated by information technology, with a particular emphasis on attracting a significantly larger percentage of female representation in the work force.

Such initiatives would go a long way towards building a much more attractive climate for both local and international investment, which in turn would help to kick the Sri Lankan economy into high-gear. Therefore our efforts as a nation must be directed towards the creation of an effective policy framework capable of addressing the difficult challenges we face today. This in turn will require new standards of leadership and co-operation between the public and private sector. 

In that context, we as an organisation are fully committed to the continued augmentation of HNB’s product and service offering in order to forge new benchmarks in the banking industry. By continuously incorporating cutting-edge technologies and innovative business strategies into our business model, we are confident that HNB will be able to support enterprises of all sizes to take chances and explore new lines of business, both locally and internationally, and ultimately serve as a partner in progress to the entire nation.