Alarm from Alles!

Friday, 2 May 2014 03:07 - - {{hitsCtrl.values.hits}}

HNB CEO Jonathan Alles highlights drawbacks of financial sector consolidation and suggests improvements By Shabiya Ali Ahlam A top banker has raised some concerns whilst highlighting drawbacks on proposed financial sector consolidation over which some pertinent key suggestions have been made. The viewpoint was presented by CEO of Hatton National Bank Jonathan Alles, who said “while the consolidation is a done deal”

he stressed the need to make the best of it: “I am trying to be positive and optimistic, but I wish to bring a slightly different perspective. I see a lot of bank CEOs here and to them I say, do not merge.” Boldly taking his stand in a forum of financial sector experts organised by MTI Consulting on the consolidation issue, the HNB CEO/MD went on to say: “It is not that I am negative and don’t see this as an opportunity, but I’ll just say that at the end of the day we will mess it up right royally.” This lucid and bold remark jolted the packed MTI forum into laughter. The event was graced earlier on by Central Bank Governor Ajith Nivard Cabraal as Chief Guest, and attended and addressed by several other banking sector CEOs. Cabraal wasn’t present when Alles spoke in a panel discussion. However, the view from the CEO of HNB, in which several State funds are shareholders, came shortly after Central Bank Assistant Governor C.J.P. Siriwardana said that the monetary watchdog was pleased to note the willingness to take part in the consolidation. Institutions in that sphere have already submitted proposals on possible mergers and acquisitions within the imposed deadline. Some of those present at the forum said Alles’ view was shared by several others in the industry, though they have remained silent. However, overall the industry has broadly maintained that the push for consolidation is necessary to further strengthen the local banking and finance sphere. State funds SLIC, EPF, NSB and EPF collectively own a 29% stake in HNB, while Sohli Captain owns 7.5% and Harry Jayawardena-controlled Milford, Stassen and Distilleries own a combined 18%. According to Alles, the way to get about the consolidation announced by the CB earlier this year in its roadmap and master plan is to keep the holding structure of the banks and not absorb finance companies into it.

CB attending to thorny issues in consolidation

Says finalising guidelines on taxation and review of existing regulatory frameworks underway The Central Bank is focused on addressing some of the thorny issues in financial sector consolidation, progress of which it said up to April has been satisfactory. “The Central Bank is in the process of finalising the Guidelines on taxation as required by these Acts. These Guidelines will provide clarity on the proposed tax incentives for the financial sector consolidation process and further motivate the stakeholders of the consolidation process. The Central Bank has also initiated action to review the existing regulatory framework of banks and NBFIs to ensure that it is strengthened to address the challenges that will arise along with the consolidation of the financial sector,” the bank said in a statement detailing the financial sector consolidation progress up to April. Following is the full statement: Satisfactory progress was made in the consolidation process during the month of April 2014. All banks and finance and leasing companies (NBFIs) submitted their broad plans on consolidation and greater participation in economic activities. The Central Bank reviewed the broad plans submitted by the banks and NBFIs and another round of one-on-one meetings are to be held with the respective banks and NBFIs to discuss these plans further. Banks and large NBFIs have shown interest in merging/acquiring many smaller NBFIs and have initiated Board level discussions with the shortlisted merger/acquisition counterparts. To facilitate these discussions, due diligence and valuation reports of the respective NBFIs available with the Central Bank have been released to the interested parties, upon completing the necessary legal documentation. Several strategic investors who have shown interest in infusing fresh capital to banks and NBFIs have also initiated their preliminary assessments of the respective banks and NBFIs. The DFCC Bank and the National Development Bank PLC continued the preliminary work relating to the merger. The Merchant Bank of Sri Lanka PLC, MBSL Savings Bank Limited and MCSL Financial Services Limited have also initiated action on the merger of the three entities with the view of forming a single licensed finance company. In addition, approval has been granted by the Central Bank for several NBFIs operating within financial groups to proceed in the process of being merged. In the meantime, the process of preparing the Information Memoranda (IM), Due Diligence Reports (DDs) and valuation of NBFIs is expected to be completed by the appointed audit firms during the first week of May. These reports based on financial data will form the basis for negotiations between the interested parties and target NBFIs. At the same time, the Inland Revenue (Amendment) Act No. 8 of 2014 and Value Added Tax (Amendment) Act No. 7 of 2014 have been enacted by the Parliament giving effect to the budget proposal on financial sector consolidation. The Central Bank is in the process of finalising the Guidelines on taxation as required by these Acts. These Guidelines will provide clarity on the proposed tax incentives for the financial sector consolidation process and further motivate the stakeholders of the consolidation process. The Central Bank has also initiated action to review the existing regulatory framework of banks and NBFIs to ensure that it is strengthened to address the challenges that will arise along with the consolidation of the financial sector. The Central Bank continued to exchange views with all stakeholders of the consolidation process while providing clarifications to queries raised by different parties. The Governor and other senior officials of the Central Bank also participated in several forums on financial sector consolidation organised by external parties during the month.

He noted there were a lot of inefficiencies in the way in which financial institutions currently carry out their activities and it was imperative such go out. While the consolidation is a “done deal,” Alles stressed the need to make the best of it and doing so was not by a bank pulling in a finance company but by taking out some of the inefficient processes, products and structures. “The ideal structure is that. I am still looking at how the 1+1 will come in the branding, parent company strength, better risk rating and pricing. All these come in with a stronger parent. But if you try to bring in merged structure and merged people and talk about bringing systems together, you are not going to get anywhere; rather you focus on driving that finance company separately and efficiently,” Alles cautioned his peers in the audience. “This is my personal perspective and my recommendation to all my colleagues is don’t touch it. At the end of the day keep it separate. Run it, bring in the corporate value and value addition,” he added.

Central Bank Chief meets global HR guru

Globally-renowned HR expert Professor Dave Ulrich paid a courtesy call on Central Bank Governor Ajith Nivard Cabraal at the Central Bank office on Wednesday. Deputy Governor Dr. Nandalal Weerasinghe and Commercial Bank Chairman Dinesh Weerakkody also participated at the discussion