Need for innovative thinking in banking to effectively raise capital

Banks too are being affected by the economic crisis, while also being responsible for supporting  recovery. Alongside this, there is a need to maintain trust. As a result, to continue to operate effectively, banks need to raise capital. To do this in a challenging environment, as individual players, and as an industry, we need to be innovative. 

As an industry, we must leverage innovative products and services, together with approaching foreign investors and lenders. No Sri Lankan bank has yet defaulted on its external commitments. Thus, we should use our good reputation to our advantage.

How DFCC is creating innovative products and niche services
The present tighter monetary environment presents an excellent opportunity to invest for the long-term. At DFCC Bank, we have adapted to this by offering unbeatable rates and attractive propositions such as our 30/5 Fixed Deposits, where we are providing 30 percent p.a. at maturity or 20 percent p.a., monthly. 

We are also diversifying our portfolio with regard to trade finance, an area we used to be very big in;we are now supporting the import ofessential items such as fertilizers, other agrochemicals and pharmaceuticals, while also facilitating educational payments. An exciting, innovative new area we are presently focussing on is ‘FX forward contracts’, which helpimporters and exporters mitigate exchange rate risk. These are not yet widely available.
Another way we are innovatively raising capital is through a renewed focus on MSMEs. DFCC Bank raised US$ 150 million from the U.S. International Development Finance Corporation (DFC) at concessionary terms, and we are in the process of disbursing these funds to identified sectors. 

Sector remains low risk – An advantage
Sri Lanka’s banking sector is the least leveraged in the region, and has consistently been so, which has helped us survive multiple global financial crises. Our exposure to external markets too is low, so the banking and financial system as a whole is very stable. This provides us with a strong low-risk foundation on which to raise capital innovatively, and take on prudent risks without compromising our stability. 

Rising rates and dealing with impairment
Sri Lanka, along with many economies around the world, is hiking rates to quell inflation. This is resulting in both a domestic and global lowering of demand for credit. However, it also gives us an opportunity to choose good quality credit in our lending activities, which will further help to strengthen the system. 

As a result of the transition from a more accommodative monetary environment to a tighter one, rising impairment costs have naturally become a challenge, and we are using the best risk management tools and models to mitigate impairment risk. Together with this, through effective management of cash flows, DFCC Bank ensures thatall its internal and external obligations are consistently met, including both local and foreign currency-denominated loans and import obligations.

Amidst this environment, we believe that innovation, customer-centricity and a focus on sustainability as a whole, is the best possible stance to face, and indeed drive, the emerging recovery in Sri Lanka. 
(The writer is Senior Vice President of Treasury and Investment Banking - DFCC Bank)