Interest rate volatility, a key challenge in financial services sphere: PLC CEO

This is the 14th of the Mirror Business-Colombo Stock Exchange (CSE) interview series, featuring the top executives of the S&P SL20 companies. Here, People’s Leasing & Finance PLC (PLC) CEO Sabry Ibrahim talks about PLC’s performance, future plans and industry growth prospects.

What are the key milestones that PLC has achieved in 2017? 

Despite a somewhat subdued operating environment that has prevailed throughout this year, the company was able to record a number of milestones: our balance sheet crossed the Rs.150 billion mark and deposits crossed the Rs.50 billion mark. This helped us to consolidate our position as the largest, stand alone, NBFI (non-bank financial institution) in the country. 

PLC’s annual report secured three awards at Excellence in Integrated Reporting Awards 2017, organised by the Certified Management Accountants of Sri Lanka (CMA): Overall second runner-up, Gold award winner in the Finance and Insurance sector and award for one of the 10 best integrated reports in Sri Lanka. The PLC annual report for 2016/17 also bagged the Grand award for the Best Annual Report of Sri Lanka at the 31st ARC Awards International, the world’s premier annual report competition. The report also secured six category awards in the financial services: General sector, Gold award for Infographics, two Silver awards for Non-Traditional Annual Report and Photography, two Bronze awards for Financial Data and Printing and Production and Honours for Cover Photo/Design.

Our new product – SelfeCash – was awarded a Gold medal at the National Best Quality ICT Awards. SelfeCash is an innovative, revolutionary concept and is a first in Sri Lanka. The product bundles all of the customer’s fixed deposits (FDs) and grants a loan facility which the customer can obtain – any amount, anywhere, any time at any frequency. Further, the customer has the ability to manage his/her deposits bundle by adding or removing FDs whenever required. The facility can be accessed through many transaction channels such as ATM, POS, Mobile app and cashier points physically located at islandwide branches. SelfeCash was developed in-house by the development team of the company as a process reengineering project, adopting the latest technologies and system integrations following the standard software development methodologies.

Our IT team also developed, in-house and launched an app – PLC Online – with the intention of enabling the customers to conduct online transactions.

Furthermore, we were granted a licence by the Bank of Bangladesh to set up and operate a finance company in Dhaka. PLC will have the majority stake and operational control and the operations are expected to commence before the end of this year.

On the HR front, PLC was recognized as one of Sri Lanka’s Best Employer Brands by the World HRD Congress and Employer Branding Institute at Sri Lanka Best Employer Brand Awards 2017. We also won Asia’s Best Employer Brand Award by the World HRD Congress and Employer Branding Institute at Asia’s Best Employer Brand Awards 2017.

The other achievements were: Brands rating of AA and annual ranking of 16 for 2017 and bagged the Silver award at the Justica CSR/Sustainability Awards.

Our subsidiary, People’s Insurance Limited, also continued to grow and consolidate its position as one of the largest and most profitable general insurance companies in Sri Lanka.

In addition, another subsidiary, People’s Leasing Havelock Properties Ltd, saw the completion of its property development project and this is now fully occupied.  

PLC has built a tradition of excellence in all spheres of leasing over the years. Looking ahead, what growth initiatives can be expected going forward? 

While leasing will continue to be our main business, we have also been focusing on developing a number of other products. This year we introduced gold loans into our portfolio and before the end of the year, another couple of products will also be introduced. We will also be introducing a few value additions to our leasing product portfolio. We will be leveraging on our IT capabilities to improve the quality of our services while continuing to make product enhancements. In addition to our ‘brick and motor’ expansion, we intend to make our financial services more accessible to our customers through branchless banking via ‘PLC Online’ and mobile banking via the ‘Int’ app.

Synergizing on our strength as ‘People’s Leasing Group of Companies’, we will continue to offer our ‘one-stop service offer’ in the form of an integrated digital experience.

Our overarching strategy, of course, is to continue to align ourselves with the government’s development agenda and focus on SMEs, which all governments have identified as the backbone of the Sri Lankan economy, while uplifting the communities in which we conduct business through corporate social responsibility initiatives. We will be diversifying our product portfolio with products such as business, education, housing loans to meet the needs of the market in a context where there will be emphasis on SME development, upgrading education, healthcare, housing and development of physical infrastructure facilities through the Megapolis project, economic corridors, improved transportation facilities, build-operate-transfer models, etc. We have also identified Islamic financing as one of the fastest growing sectors and strengthened our Islamic finance offerings to cater to a larger number of customers in this segment.

We also expect to provide sustainable finance to tackle climate change and support sustainable growth in clean energy and lower carbon technologies and financing projects that contribute towards fulfilling Sustainable Development Goals (SDGs) declared by the United Nations. 

In your opinion, what challenges do you anticipate in the financial services space?

With more and more banks entering the leasing space competition is expected to intensify.

Interest rate volatility, a lack of long-term fixed rate sources and an absence of hedging instruments to mitigate interest rate risk, are the main financial challenges. In addition, the regulatory strictures like prohibitive loan-to-value ratios are the other big challenges to the growth of the industry. Of course, from a macro perspective, the state of the overall economy will be a big determiner of the industry’s growth. One other challenge that the financiers face is the difficulty in realising on collateral in the case of default. Currently, the litigation option is very costly and protracted and is a deterrent to increasing our risk appetite and thereby providing the growth stimulus to the economy. 

Could you elaborate on how the industry could evolve to better serve the modern demands of the leasing sector? 

Given the intense competition in the industry, with even large banks fighting for a market share, customers are now in a position to demand a speedy service and innovative products at low cost. In order to meet these demands, the players must ensure that all concerned staff are properly trained and empowered to provide a quick and reliable service; source cheaper and longer-term funds so as to ensure a very cost-effective leasing solution, enhance the current plain vanilla portfolios and develop more sophisticated products, like variable rate and structured leases, to cater to the evolving needs of the market. 

The industry players must also continually review their policies and procedures to identify and eliminate all non-value adding activities. Use of IT must be maximized and this, along with a business process reengineering initiative, will contribute to delivering a more efficient and cost-effective service to the clients. Training in risk management is also essential to enable identification of credit worthy borrowers and be able to turn around transactions quickly.

Focusing on the shareholder, what efforts and initiatives are you taking to drive shareholder value? 
We are committed to providing our shareholders with a sustainable market return and to this end we have consistently maintained a sound dividend policy – paying constant dividend through the years, ensured transparency and supported shareholders to take informed decisions by updating them regularly on company decisions.

As a consequence, we are the most rated non-banking financial institution in Sri Lanka with AA-(lka) rating by Fitch Ratings Lanka Limited and two international ratings: ‘B+/B’ by Standard & Poor’s and ‘B’ by Fitch Ratings International. With a view to driving shareholder value, a number of initiatives are underway and these include enhancing service levels to improve the overall customer experience, training of staff to improve productivity/reduce wastage and customer centricity while simultaneously improving staff engagement levels, enhancing our risk management capabilities to minimize credit and operational losses, improving our IT capabilities and investing a certain amount of our profits in a number of sustainability-related projects.

How has listing on the CSE been beneficial to PLC and also touch on the investment case for the company?

A company listed on the stock exchange can be viewed as public property and therefore is subject to a higher degree of scrutiny and accountability; we are forced to be more transparent while holding ourselves to a higher standard of governance. This has forced us to improve our reporting procedures, tighten up on controls and heightened our consciousness about responsibilities to all our stakeholders. This has in turn improved the confidence levels of our customers, bankers and investors. As a result, we have even been able to attract foreign investors and lenders, which has opened up another source of financing for us.

The country is now in transition, driven by the vision to make Sri Lanka the hub in the Indian Ocean and link it to external markets through exports. The economic strategy poised to “raise per capita income to US $ 5,000 per year, create one million new jobs, increase foreign direct investment to US $ 5 billion per year and double exports to US $ 20 billion per year’ is on the cards of the present government. Also a new trade policy, along with an original national export strategy, will give rise to a more liberal, transparent and predictable trade regime. 

Furthermore, these policy changes will attract more export-oriented FDI, improve trade logistics and boost Sri Lanka’s ability to compete in global markets. There are also plans to improve Sri Lanka’s ranking in the Ease of Doing Business Index by undertaking essential economic reforms while ensuring policies are predictable, consistent and transparent.

PLC’s strengths are the unwavering support and guidance that we receive from our parent, People’s Bank – one of the largest and most profitable banks in the country and owned by the Government of Sri Lanka, the outstanding talent that we possess at all levels of the company and their dedication and commitment and the loyal clientele we have built up over the years. These strengths together with the company’s commitment to transparency and good governance have positioned the company to benefit from the envisaged economic environment and to continue to deliver steady and sustainable value to our shareholders while being a safe haven for our investors.