S. Renganathan

This is part of the interview series titled ‘Mirror Business S&P SL2- Insights’ conducted in collaboration with the Colombo Stock Exchange (CSE). The interview features Commercial Bank of Ceylon PLC Managing Director S. Renganathan. Following are excerpts from the interview. 

 How has COVID-19 impacted the business operations of Commercial Bank and how has the bank responded to these impacts? 
Being an economy which is heavily dependent on foreign inflows, the weakening of global economy due to the pandemic will also affect almost all key sectors. It is unavoidable that the banking sector as a financial intermediary to feel the strain of these negative economic conditions, given that most of the thrust sectors such as apparel, tourism and remittances are feeling the strain of economic slowdown globally.

Banks are also at the forefront of economic recovery post pandemic, assisting affected borrowers with moratoriums, concessions and fee waivers, additional support through self-funded loan programmes and tailor-made digital services. The added workload on top of reduced income will certainly multiply the challenges faced by the industry.   

Commercial Bank responded swiftly to this situation by launching a strategically executed action plan which covered all crucial avenues. During the lockdown period our branch and department network functioned to provide maximum possible level of service to our customers. 

The team ensured that the applications for moratoriums and working capital loans were processed swiftly so that approvals could be obtained from the Central Bank faster and support our borrowers early. We ensured that customers had access to their money in curfew imposed areas by deploying mobile vehicles. 

Commercial Bank was the first bank to launch its own loan facility with an attractive interest rate, specially for export oriented SMEs and women connected SMEs, which are affected by the pandemic, followed by another loan scheme for micro businesses. 

The bank forwarded over 4000 applications bearing the value of approximately Rs. 19 billion to Central Bank for working capital loan under Saubagya scheme. The bank has already disbursed loans to the value of Rs. 2.6 billion out of the 2.8 billion facilities which were approved by the Central Bank. 

The bank is in the process of disbursing the funds from the second tranche and will be disbursing another Rs. 15 billion worth of loans. The bank also took steps to reduce lending rates twice since the outbreak of the pandemic and has reduced as much as 4 percent from some loan products within 2020.

Our plan focuses on the financial health of customers after their moratorium periods are over as well. For this purpose we have introduced special payment relief schemes that include up to 20 percent ‘Rebates’ on early settlements of accrued interest during moratorium periods, ‘No capital pay’ for certain periods, additional moratorium periods, equated monthly installment schemes for credit cards and ‘debt consolidation plans’ for SME borrowers with multiple borrowings. These were formulated after considering individual and SME customer needs and offering selection of options that would include a major portion of our customers.

What is your assessment on how the banking industry will fare over the next 18 months and what challenges do you anticipate in the industry?
The environment is still very much uncertain with no permanent solution for the pandemic in sight globally. This means that main sectors of our economy will take a longer time to recover and to resume operations in their optimum capacity. 

The drop in the Gross Domestic Production and the additional pressure on the sector due to additional costs incurred and the halting of recovery efforts will negatively affect the balance sheets and two major ratios that dictate the health of the banking sector, namely capital adequacy and liquid asset ratios.

The sector will have to keep adjusting its operations, guidelines and processes to suit the prevailing conditions. The parameters that apply to determine the credit quality, classification of customers, some of the operational guidelines have changed. 

Also the sector has to deploy a substantial amount of manpower into constant servicing, and maintaining of various relief schemes, guiding customers to obtain the suitable options for them and all affiliated work related to the relief schemes. The sector will have to operate in a very different environment and everything from credit evaluations, risk appetites and to accounting standards will have to undergo adjustments in the medium term.

Few sectors will need extra support to even re-start their operations and the onus would be on the regulators and the sector to cater to these special segments through a comprehensive post moratorium package.

Is your business model resilient enough to recover from the impact of a crisis and manage potential crises in the future?
COVID-19 pandemic is a unique, invincible and invisible threat that the entire world faced. There were no examples or set action plans that any sector could adopt for this crisis. However, banking is one sector that is adhering to stringent regulatory environment which in turn have resulted in majority of banks having very sound risk buffers. 

The newly implemented regulations such as BASEL III provide strong protection for banks in such environments. The sector has gone through its fair share of crises in the past and with the support and the guidance of the regulators and the government I am confident that it is well equipped to handle this crisis 
as well.

Could you elaborate a few growth prospects for the bank going forward and how you intend to capitalize on these growth opportunities?
Commercial Bank is one of the largest lenders to Small and Medium Entrepreneurs (SME) in the country. The pandemic only sharpened our focus on this segment and that is still a key growth area for the bank. 

Having introduced relationship management to SME sector through our very own ‘BiZ Club’, we intend to better cater our facilities to entrepreneurs to enable them to revive their businesses.

As I mentioned earlier, digital on boarding will continue to accelerate as well as our digital offerings to customers. Our focus will also be on e-commerce and the use of technology in better profiling our customers.

How is the bank responding to the credit relief announced by the government in the wake of COVID-19 and how much has the bank already lent out to SMEs?
Commercial Bank has so far provided moratorium facilities to approximately 52,000 borrowers consisting of 38,000 retail borrowers and 14,000 SME & corporate borrowers. The total relief provided under the government scheme is Rs. 174.5 billion. 

In addition, the bank approved and additional amount of Rs. 158 billion of facilities outside the government moratorium scheme resulting in approximately Rs. 332.5 billion worth of total facilities on moratoriums. 

Under Saubagya refinance scheme we forwarded over 4000 applications for the value of Rs. 19.6 billion and have received approval for 722 applications for the value of Rs. 2.8 billion. We have already disbursed facilities to the value of Rs. 2.6 billion out of this. We have already submitted over 3500 applications with a total value of Rs 15.6 billion for the second phase of this loan scheme and are pleased to state that approximately Rs. 14.3 billion worth of applications have been approved by the Central Bank.

What efforts and initiatives are you taking to drive shareholder value amidst this pandemic? 
The initiatives adopted by the bank focus on all stakeholders and certainly on the important segment of shareholders. We were able to hold the first virtual Annual General Meeting of the bank during the pandemic. The dialogue with the shareholders is constantly ongoing and we engage them positively and take their feedback very constructively. 

During the pandemic the bank worked closely with IFC to secure loan funds up to US$ 50 million to launch the two low cost loan schemes. Taking a step further, Commercial Bank negotiated a private placement with IFC at a premium price, which speaks volumes on their belief of our stability. This transaction will have a positive effect on the share price benefitting all existing shareholders.

Finally, what is your message to shareholders of Commercial Bank of Ceylon, especially in the context of COVID-19 and the way forward?
We would like to extend our heartfelt gratitude to all our shareholders for their continued support and assure Commercial Bank will continue to uphold the highest ethical standards whilst generating value for all stakeholders including shareholders.