By Shabiya Ali Ahlam
The local financial landscape last week saw one of the nation’s well established development banks merging with its subsidiary with the aim of having its roots deeply embedded in the ever-changing and fast evolving world of banking.
On reaching the 60-year milestone, DFCC Bank and DFCC Vardhana Bank (DVB) joined hands to become a dynamic new commercial bank, one that aims to serve its customers with not just a wider range of products, but solutions as well.
Starting a fresh chapter with a new brand, new image and new focus, DFCC Bank PLC CEO Arjun Fernando (former DFCC CEO) and Deputy CEO Lakshman Silva (former DVB CEO) expressed confidence in the newly amalgamated entity reaching greater heights.
Mirror Business met up with the two heads shortly after the merger where they shared in depth, the purpose of the move, challenges faced and the way forward.
Following are the excerpts of the interview: What was the notion behind the merger?
Fernando: Our thinking has always been to amalgamate the banks but there were legal constraints. In January this year, these constraints were removed and since then, we have been working to transform DFCC and DVB into one amalgamated, full-service bank that is capable of providing the entire gamut of development and commercial banking services. During the past months, we assessed the pros and cons and came to the conclusion that the combined size and reach of the amalgamated entity and the synergies it will provide, will position DFCC to be able to deliver sustainable solutions for all stakeholders by creating a powerful platform for growth.
It is doubly significant that we achieve this milestone at the same time that DFCC celebrates its diamond jubilee, having been incorporated on October 4, 1955. The amalgamated bank will build on 60 years of heritage with the dedicated, vastly experienced and competent team at DFCC and the young, vibrant and enthusiastic team at DVB - an unbeatable combination.
Silva: The combined size gives a bigger reach and synergy. There is immense cross selling opportunities being one bank. It was happening, but when you are one, it is seamless.
Another key reason for the merge was that while there were requirements to maintain as separate legal entities, duplication of work was observed.
Sometime last year there was focus on merging with National Development Bank (NDB) but that didn’t go through with the change of government. Soon after, an internal merge was proposed. How did the employees respond to change?
Fernando: Now that you mention NDB, the idea of merging was still fresh in the minds of our employees and we suppose that made things easier.
Our people are professionals. Any professional needs a level playing field and we provide that. There is great enthusiasm among the staff about the amalgamation. We have taken pains to see that no one is disenfranchised, left out, or deprived of an existing benefit. Where there are differences, the better option is provided to all.
There will be no reduction of staff. We value all our people, and with the growth opportunities that will come from becoming a bigger bank, the opportunities for advancement are open to all enterprising and dynamic individuals.
We have teams of experts at both DFCC and DVB who have pioneered innovative products and services, which are at the forefront of the banking industry. We will foster and encourage these people to continue these initiatives for the benefit of our customers and other stakeholders. Opportunities abound for those willing to take advantage.
Change is accompanied by anxiety and concerns and we would like to think we have handled the situation in a manner that has allowed our employees to look at the bigger picture.
Silva: The NDB-DFCC merger would have been a bigger challenge as it was about two completely different organisations coming together. Here it was not the case as DFCC and DVB share similar process, culture and centralisation was already in place. As we were preparing for a bigger merger, handling this amalgamation was less challenging compared to what it would have been if the NDB-DFCC merger was to go through.
When looking at the history of DFCC and DVB it can be said that change is an element we are well familiar with.
With regard to challenges, what did the bank face during the process and what do you expect in the near future?
Fernando: One of the anticipated challenges was the institutional resistance to change that comes naturally in the voluntary amalgamation of such financial institutions. Managing this change proactively is the key to determining the success of the exercise. We are fortunate to have had recent first-hand experience in successful acquisitions and business amalgamation with regard to our group companies. These not only required structural reorganisation but also realignment of mindsets so we are more than ready, and in this case, I am happy to say that our staff is really demonstrating their ability to adapt not just to superficial changes but also changes to institutionalized practices like structure, processes and the way things are done.
We also had the experience of preparing for the merger with NDB 18 months ago. We also addressed any anomalies on HR benefits between DFCC and DVB early. We had an Ombudsman and other lines of communication open to the senior management and directors.
As to challenges expected in the near future, I would like to place them in the categories of external and internal challenges.
In the first, the banking sector facing pressure on net interest margin and areas such as credit growth is a concern.
Internally, ensuring we have integrated solutions to customer needs, keeping the staff motivated and excited about the future direction of the bank.
Silva: Now that we are one, we expect the customers to be part of this single entity. The challenge will be that our competitors will be monitoring our behaviour closely.
Going forward, the interest rate behaviour and the margins generated are becoming thinner. It is something we have to be concerned about.
One of the key strengths of merging is bringing down the cost of operations of the bank, not by cutting down human resources but by increasing efficiencies. As a result, we will be able to provide better terms and conditions to our customers.
Since you mentioned customers, how different will the MARCOM approach be?
Fernando: It is not going to change much. However, while using the traditional approach like advertising, PR, we are looking to improve our focus on non-traditional digital media like online, social media and mobile apps since we want to capture the younger generation. In that sense, there will be a small change in fact.
Silva: In the rural areas, where the DFCC presence was not available, we have made arrangements for branch staff to communicate early to
those markets.
The decision to merge was taken at a time when political uncertainty was at its height and when there was a slowdown in the overall economy? Did any of these situations impact the amalgamation process?
Fernando: When the board decided four months ago, October 1 was the date set to complete the process. Back then we thought that was a goal that would be attainable with a concerted team effort. Due credit should also go to the government agencies and the regulator. In the midst of all the changes that were taking place in the macro environment, in no way did it slow down the approval process and we greatly appreciate that.
Silva: The decision to merge at that uncertain period was good for the organisation. There was the January 8 presidential election and thereafter it was observed that the economic outcomes were not positive. Then came the general election and then there were mixed sentiments.
Regardless of the situation, business had to continue, even at those times which led to a lull in the market. That I think also helped the organisation focus more on the amalgamation.
What will the amalgamated entity bring to the financial landscape?
Fernando: This new entity brings together a pioneering specialised bank with the fastest growing commercial bank. This amalgamation will position us as a very strong player in the financial industry and it will result in many positive outcomes for the sector. An obvious outcome will be an enlarged customer base and geographical penetration, which will result in enhanced microfinance services and better service provision in rural areas.
As you know, larger banks are better positioned to demand better premium from lending agencies and from institutional investors and this will result in cheaper funding costs and also greater risk-bearing capacity. It will also create increased operational efficiency and even better management of assets and liabilities.
We will now be looking at more international opportunities. Not necessarily limited to physically opening branches but by supporting our customers who are venturing overseas, where we can lend from our Foreign Currency Banking Unit here.
We are also looking at different synergies with our group partners. Currently we are in Fiji and Solomon Islands, and we are looking at the Philippines and Cambodia. Within the next six months, we are hopeful we will have links there.
Technology will also play a big role with new and more effective IT applications and solutions coming into the mix and this consolidation will also create a wider range of financial services to achieve economies of scope.
Silva: In Sri Lanka we have been in the rural areas providing personal financial services. When setting up branch units we have been careful. We have been cautious on not over marketing ourselves where other banks are available. Majority of our units are available in areas where a state bank is present but no private commercial banks.
With DVB holding a commercial bank licence, we were unable to use the credit lines that were enjoyed by DFCC. Now there is greater opportunity for the new amalgamated entity to go ahead and provide concessionary funding, development banking loans to those who were not eligible to get the same through DVB earlier.
Furthermore, with the assistance of our IT firms we have introduce a solution for larger entities with larger supply chain. We will be the first in the nation to provide a solution of that sort. It will be launched in Ratnapura and depending on the success will be rolled out in the down South and up-country if possible. At the moment the solution is only for the tea sector, but soon the reach will be expanded to include other sectors as well. This effort is in realisation that IT is the way forward.
In the past, we were taking a passive role when it came to ATM operation, where we were seeking the assistance of other organisations to support our endeavour. Now that we are a bigger organisation, we feel we can handle these efforts independently.
In the next 15 months the market will see many activities from DFCC that will be of great contribution to the financial landscape.
Fernando: The focus will be more on integrated solutions than products in the future.
What is the bank’s unique selling point (USP) going to be?
Silva: Creativity and flexibility. In a small way we have created a market image as a financial institution which is approachable by anyone, to have access to speedy solutions and decision-making.
Fernando: Being a large entity with multidisciplinary skilled employees and drawing on the synergies from group companies, along with our 60 years of experience in serving the market, will be a key USP that we bring to the table.
In terms of size, where does the amalgamated entity stand amongst other players?
Silva: Typically there are three tiers. The first is the state banks that are non-comparable; the second is the larger commercial banks. The new entity will be just below the second tier but above the last tier.
As independent separate entities we fell in the third tier but now we have moved up the ladder and hope to continue to progress in that direction.
How will DFCC position itself in the competitive environment it operates in?
Fernando: We would like to position ourselves as a hybrid institution. While we are a commercial bank we will ensure the momentum in development banking will continue with the same vigour.
Now that the new entity will function as a full-fledged commercial bank, how much focus will it have on development banking?
Fernando: We will look to maintain and build on the development banking business where we have the premier positioning at present. We have the core competencies which not many other institutions can match - therefore, a ‘hybrid’ banking positioning to enhance our offering of the full gamut of banking products and services to individuals, SMEs and mid to large corporates. All our tactical initiatives deriving from strategy will be customer centric.
Any new segments the entity hopes to tap into? What are the opportunities the bank is presented with?
Fernando: We have great plans for the future. We will continue supporting individuals, businesses and the community, as we have done for 60 years, and our customers can look forward to enhanced service standards, with new and innovative products which we hope to unveil in the not too distant future. DFCC has served Sri Lanka’s development needs for decades, without profit being the main consideration. There are plenty of established corporates who will attest to this. We will continue to provide this service, and now, as a commercial bank, we will expand the services we provide to include those that are relevant to our customers in today’s economy.
Throughout our operations, we will continue to build stronger and more profitable relationships by providing customized solutions, leveraging synergies across our main businesses, capitalizing on our core strengths whilst nurturing our most valued assets - our employees - and carefully managing costs.
Now that DFCC has embarked on a new journey, what message would you send out to the stakeholders?
Fernando: We are stronger now and can provide a wider array of services. Our new tagline is ‘Keep Growing’ and we feel that it applies to all our stakeholders.
Silva: We will continue to deliver as promised to our customers in all segments.
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