Sri Lanka’s banking sector leads the country’s economic recovery

Colombo city skyline, Sri Lanka&nbsp

Author: Ajantha de Vas Gunasekara, Executive Director & Group CFO, Sampath Bank

July 6, 2022

After successfully riding out the first few waves of COVID-19, Sri Lanka approached 2021 with cautious optimism about the future as global economies began opening up and worldwide trade links were restored. Further aided by the Sri Lankan government’s aggressive vaccination roll out, the country geared up for a quick return to normalcy. These efforts, coupled with strong decisive action by the Central Bank of Sri Lanka to support the private sector and also assist the banks to manage the negative effects of COVID-19 related disruptions, saw the Sri Lankan economy grow by 3.7 percent in 2021, a sharp contrast to the contraction of 3.6 percent reported in 2020.

Despite these positive signs however, the fragility of Sri Lanka’s economic recovery was brought into question on the back of lingering concerns regarding rising inflation, erratic currency fluctuations and rapidly depleting foreign exchange reserves amid the backdrop of the country’s mounting debt burden. Even with all this in the background, the country’s banking sector continued to play an anchoring role in fuelling growth and supporting greater economic stability. Notwithstanding pandemic-related negative headwinds, the banking sector as a whole recorded noteworthy credit expansion, indicating that the country’s economic revival was solid.

Relief measures
With Sri Lanka on post-COVID reset mode, Sampath Bank demonstrated a strong focus on customers and employees, and showcased its resilience and ability to grow safely and sustainably. Renewing its commitment to customers, the bank took immediate steps to implement the government mandated relief measures to assist COVID-19 affected individuals and businesses. A total of LKR 10.5bn ($30m) worth of disbursements were made under the Saubhagya Renaissance scheme up to the end of 2021, while all eligible customers were granted the debt moratorium extensions announced by the government. Over and above these government mandated measures, the bank continued with its own efforts to support businesses and individuals affected by the pandemic induced economic downturn.

From a business perspective, the bank moved determinedly ahead with phase II of the Triple Transformation 2020 (TT2020) agenda. In this second phase, the focus was pivoted on three pillars: growth, risk and cost. The growth pillar was centred on seizing opportunities presented by the low interest rate environment, with special emphasis on driving credit growth across the SME sector and in the green financing domain.

Responding to the heightened demand for working capital from SMEs keen to restart their operations after the COVID-induced lull in economic activity, the bank pushed ahead with its ‘Diriya’ loan scheme – Sampath Bank’s flagship product targeting the SME sector. In parallel, lending activities were also accelerated on the back of strong encouragement by the government to increase the proportion of renewable energy in the country’s overall energy mix.

Groundbreaking development
Having been in the business for the past 34 years, Sampath Bank has a well-established track record for digital excellence. In 2021, the bank leveraged these capabilities to launch ‘Touchless Cash Withdrawals’ (TCW) at ATMs. The TCW technology, with its contactless feature, allows users to withdraw cash from an ATM without ever having to physically touch the surface of the machine, is perhaps the most groundbreaking development to have been unveiled in the local banking industry in decades.

It was also seen as a conscious response to the urgent need for contactless transactional capability in the COVID-19 environment. Based on this same rationale, the network of digital interfaces was further expanded to empower customers to perform more and more of their banking activities remotely. Some notable milestones included the roll out of digital on-boarding across multiple platforms, including Sampath Vishwa and through the e-enrollment tab on the corporate website as well as Sampath Bank’s Virtual Teller Network. A dedicated video conferencing facility was also implemented to enable corporate clients to open business accounts.

From a risk perspective, the focus was on strengthening risk fundamentals to take cognisance of the tenuous and often unpredictable operating environment. As part of the overall risk management approach, strong emphasis was placed on increasing the integration between the bank’s physical and digital systems in order to build backend system resilience, while additional investments were made to fortify the bank’s information security systems.

Users can withdraw cash from an ATM without ever having to physically touch the surface of the machine

Meanwhile, the cost pillar was driven primarily through digitalisation and process automation initiatives guaranteed to deliver dual benefits in terms of improved operational efficiencies as well as lower paper usage, collectively contributing towards lowering costs. In testimony to the success of these efforts, the bank’s cost-to-income ratio (excluding taxes on financial services) declined significantly to 35.3 percent in 2021, from 43.5 percent in 2020. Continuing to prove its resilience and ability to remain sustainable even in times of uncertainty, Sampath Bank produced strong financial results in 2021. Having crossed the trillion rupee mark in the previous year, the bank’s asset base edged up to Rs. LKR 1.2trn ($3.4bn) as of December 31, 2021, a solid 8.1 percent increase year-on-year.

Meanwhile profit after tax (PAT) of LKR 12.5bn ($35.7m) and profit before tax (PBT) of LKR 16.8bn ($48m) for 2021, also indicate significant growth of 55.2 percent and 50.7 percent respectively compared to 2020. In light of this performance, the board declared a cash dividend of LKR 4.25 per share for the year ended 2021, ensuring the continuity returns to shareholders.

Looking beyond the numbers has always been central to Sampath Bank’s service philosophy. The pandemic only served to strengthen the bank’s resolve to reorient its approach to address the needs of employees and the wider community.

While continuing with all planned employee development initiatives, the focus on employee safety was significantly deepened in this past year. For the safety and wellbeing of its employees and their immediate families, the bank undertook to cover the cost of PCR testing, the cost of intermediary care including ambulatory charges and if required, critical care for those testing positive for COVID-19.

Community initiatives
Unwavering in its commitment to the community, Sampath Bank proceeded with its flagship community initiative – the ‘Wewata Jeewayak’ tank restoration programme where three new projects were undertaken in 2021 for the benefit of over 4,000 rural paddy farmers in the dry zones of Sri Lanka.

Since it was impossible to run the traditional ‘Sampath Saviya’ workshops in 2021 due to pandemic restrictions in place, the bank hosted webinars for SMEs. At the same time, through the ‘Hope for a Life’ programme, the bank made significant donations of essential medical equipment to state hospitals around the country to help in the fight against COVID-19.

By solidifying its track record of solid financial results and responsible operations, Sampath Bank has yet again proven that it has not just the capability and the courage to navigate unforeseen circumstances, but also the sheer determination to succeed against all odds.

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