Challenges and Opportunities in Banking Industry

 

Challengers in the Banking Industry

Banks are facing challenges in several areas,

Regulatory pressure

Regulatory requirements continue to increase, and banks need to spend a large part of their discretionary budget on being compliant, and on building systems and processes to keep up with the escalating requirements.

Increasing competition from financial technology companies

Financial technology (FinTech) companies are usually start-up companies based on using software to provide financial services. The increasing popularity of FinTech companies is disrupting the way traditional banking has been done. This creates a big challenge for traditional banks because they are not able to adjust quickly to the changes – not just in technology, but also in operations, culture, and other facets of the industry.

Consumer expectations

These days it’s all about the customer experience, and many banks are feeling pressure because they are not delivering the level of service that consumers are demanding, especially in regards to technology.

Increased Capital Demands

The number one regulatory change across all legislation is the increased demand for capital in banking operations.

Political interference

A Slow Economy

Criminality

Cyber attacks are increasingly seen as a top concern for bankers.

Opportunities in the Banking Industry

 

Improving Operational Efficiencies

In recent years, advancing customer-facing services such as mobile banking has been a priority for financial institutions. These initiatives were necessary to keep up with expectations of digital convenience and seamlessness that customers have experienced in other industries.

Balancing Human, Digital, and AI

Finding the right balance between human, digital, and AI technologies is likely to be important in recent years.

Acquire or Learn from Fintech

Small and Medium Enterprises Banking

SMEs are defined in a variety of ways by various countries using such parameters such as number of persons employed, amount of capital invested, amount of turnover or nature of the business, etc.

Using the size of capital and the number of employees as the criteria, the Industrial Development Board defines a small industry as an establishment whose capital investment in plant and machinery does not exceed Rs.4 million and the total number of regular employees does not exceed 50 persons. The Department of Small Industries classifies enterprises with capital investment of less than Rs.5 million and fewer than 50 employees as SMEs.

For the purpose of a World Bank Financed Investment Assistant Scheme, financial institutions define SMEs as those enterprises whose investment in fixed assets at original book value, excluding land and building, do not exceed Rs.8 million (US$ 84,000). In the case of projects where the main investment island and buildings (for example warehouses), the total investment in fixed assets, inclusive of the cost of land and building should not exceed Rs.16 million (US$168,000).

INSTITUTIONAL SUPPORT FOR DEVELOPMENT OF SMEs 

The governments who came to power since independence have initiated various measures, from time to time,for the up-liftment of the SME sector.This is reflected in the establishment of various institutions and launching of various programs aim at supporting the sector. By establishing the following institutions,Sri Lanka has tried to boost the SME sector.

• Ceylon Institute of Scientific and Industrial Research (CISIR)
• The Department of Rural Development and Cottage Industries 
• The People’s Bank and The Bank of Ceylon
• Laksala
• Industrial Development Board ( IDB)
• Department of Textile
• The National Development Bank (NDB)
• Small Enterprise Development Division (SEDD)of Ministry of Youth Affairs & Sports
• Regional Rural Development Bank (RRDB)

PROBLEMS ASSOCIATED WITH THE DEVELOPMENT OF SME SECTOR IN SRI LANKA 

A major problem in the SME sector is the shortage of capital due to number of reasons such as lack of access to bank facilities,lack of knowledge of bank procedures, long delays and inability to provide guarantees.Although there are some loan schemes available,the high rate of interest makes the venture unattractive.

The sector has a weak institutional base due to lack of management skills.Management skills are the critical success factors in all of businesses thus Small Business has no exception. Small business does not mean that they are scaled down version of big business.It has to deal with all most all the functions that large businesses have to deal.So,lack of managerial skills of owner/manager may hamper the progress of the business.

The use of obsolete or inappropriate technology results in low productivity,low quality of products,and a high rate of rejection of products,resulting in higher costs to the producer and a reduction in market competitiveness.Again,this is also due to the weak financial base and lack of managerial skills.The weak financial position may hampers the upgrading of technology;expansion of production capacity,production efficiency,and does not allow the firm to go for new and sophisticated technology and spending on training and development of its work force to increase the productivity.In some cases,although fund are available,the management does not utilize them in areas such as training and development as the management do not understand the positive impact of training on business success.

The lack of SME policies and institutional support to protect and encourage SMEs are also hampers the progress of this sector.Specially,small businesses are vulnerable to the changes in the environment.Due to the inherent nature of smallness it will not be able to compete with big businesses.For example,with the introduction of open economic policies in 1977,a large number of handloom textile enterprises had to be abandoned by owners.So,the lack of clear policies, incentives and institutional support will reduced the survival rate and progress of ventures in this sector.

Product evaluation of HNB Bank

Personal Banking products 

Savings

General savings

• Regular savings
• Capital savings
• HNB Adhishtana - a unique savings account that will allow senders of remittances from Middle East and Gulf Region and receivers in Sri Lanka

Higher interest rates based on the account balances 
Free Internet banking for the first year 
Free mobile banking for one year 
Free HNB Visa International Debit Card 
Immediate loan facilities of up to 90% of your account balance

• Money market savings accounts   - A Money Market Savings Account can come in handy for an individual, a corporation or an institution, if you make minimum initial deposit of Rs.500,000/-. based on the inter-bank call money market rate
• Capital transaction rupee  account (CTRM) - All existing Non- Resident Rupee Accounts (NRRAs), Non- Resident Blocked Accounts (NRBAs) and Migrant Blocked Accounts (MBAs) have now merged and re-designated as Capital Transactions Rupee Accounts (CTRAs).

·       Minor Savings

•  Singithi Kirikatiyo below 5yrs
•  Singithi Lama New born to 12 yrs
•  Singithi Surakum foreign Currency

Singithi Surakum is a special account for your child in foreign currency.

• Diridaru Scholarship Scheme

HNB Diri Daru Scholarships for Grade five, O/L, A/L & for special achievements

Benefits offered for HNB Teen account

·       Account Balance	·       Gift Voucher Value
·       Rs. 100,000/-	·       Rs. 5,000/-
·       Rs. 250,000/-	·       Rs. 10,000/-
·       Rs. 500,000/-	·       Rs. 20,000/-

•        Minor Savings Visa

1.HNB Wally-E

2.  Pre-Paid Visa Cards for Teens and Parents

•       Youth Savings

 1.HNB Teen Accounts

  2.    HNB You

•       HNB Salary SMART

Route your salary and get your HNB Shopping Debit Card that gives you the equivalent of 3 times your salary. Get more from your pay, to live the life you want. 

•       HNB FIT Account
•       Senior Citizens

1.Senior Citizens Scheme

If you are 55 or above you are eligible to obtain a HNB senior Citizens’ savings or term account that comes with three special schemes as well as a special privileges card with benefits

2. Sathkara for Gov.Servents

enjoy these exceptional benefits in savings accounts, fixed deposits and personal loans, is to deposit your pension in an HNB Sathkara account

•      Term Deposits

1. Fixed deposits

2. Call Deposits

•           Foreign Currency Accounts

o   Personal Foreign Currency Accounts

o   Business Foreign Currency Accounts

o   Diplomatic Foreign Currency Accounts

o   Foreign Currency Accounts Advantage Accounts

o   Inward investment accounts

o   Outward investment Accounts

o   Senior foreign national special accounts

Loans

·       Personal Loans

•      Shanthi home loans

To buy your first home, move to a new residence, investing in property or looking to switch to a better deal. HNB Shanthi Home Loans have many options available

·       Loans for professionals

Housing and Educational loans at lower rate

•       Cards

o   International debit card

o   HNB Credit cards

o   HNB Travel card

o   HNB Affinity credit cards

•       Remittance
•       Current Account

o   Shareline current accounts

o   Current accounts

• Leasing       
• Pawning

New products

·       SOLO

Payment platform through a mobile app using QR codes. A card less payment system

·       AFFY

Mobile app that can customize their own website with personal products

Corporate banking products

• Trade Services
• Issuance of Bank Guarantees

HNB, with its worldwide network of correspondent banks is one of the foremost issuer of bid bonds, Performance bonds, advance Payments Guarantees, Retention bonds and letters of Guarantee for projects and tenders in Sri Lanka

• International Trade Services

As a premier trade bank in Sri Lanka, HNB has long established correspondent banking relationships worldwide with reputed international banks.

SERVICES IN IMPORTS

1.Letters of Credit.

2.Arranging LC Confirmations through our Correspondent banks worldwide at very competitive rates.

3.Structuring import facilities in line with trading patterns.

4.Issuing of Special Forms of Letters of Credit.

5.Handling of Import Bills on Collection.

6.Issue of Shipping Guarantees.

7.Endorsement of Documents Received-in-Advance.

8.Avalization of Collection Bills.

9.Financing Imports.

10.Facilitation of Entrepot Trade Business.

11.Handling Entrepot Trade Transactions.

12.Processing of Advance Payment/Open Account Transactions.

13.Arranging Marine Insurance facilities for the movement of cargo across International boundaries.

SERVICES IN EXPORTS

1.Advising of Letters of Credit.

2.Handling Transferable Letters of Credit.

3.Confirmation of Letters of Credit.

4.Negotiation of Export Documents Under LC.

5.Handling Export Bills on Collections.

6.Purchase / Discount of Export bills.

7Pre-shipment Facilities.

8.Assistance in Preparation of Export documents.

Treasury Services

Spot transactions are simple contracts to buy or sell currency at spot exchange rates for spot delivery normally within 2 working days.

Islamic Banking Services

Murabaha Import Revolving Facility.

Murabaha Local Trading Revolving Facility.

Diminishing Musharakah – Personal Housing Finance Facility.

Diminishing Musharakah – Commercial Property Finance Facility.

Diminishing Musharakah – Working Capital Finance Facility.

Diminishing Musharakah – Vehicle/Machinery Finance Facility.

Diminishing Musharakah – Project Finance Facility.

Wakala Financing.

Ijara – Vehicle Leasing Facility ( Will be introduced shortly).

Shipping/Bank Guarantee/Letter of Guarantee Facilities.

Letter of Credit – Import Facilities.

Document Handling and Collection Facilities.

Debit Card Facilities.

Central Bank of Sri Lanka

History of Central Bank

Central Bank of Ceylon was established by the monetary law Act (MLA) No. 58 of 1949 and commenced operation on 28th August 1950.
It was renamed the Central Bank of Sri Lanka (CBSL) in 1985.
The first Governor of Central Bank of Ceylon was Mr. John Exter, an American economist from the Federal Reserve of USA. 

The Central Bank was given wide powers to administer and regulate the entire money, banking and credit system of the country. The Central Bank was also given the sole right and authority to issue currency and it also became the custodian of the international reserves of the country.

The main four objectives of the Central Bank as specified in the MLA in 1949 were;

• The stabilisation of domestic monetary values (maintenance of price stability).
• The preservation of the par value or the stability of the exchange rate of the Sri Lankan Rupee (maintenance of exchange rate stability).
• The promotion and maintenance of a high level of production, employment and real income in Sri Lanka.
• The encouragement and promotion of the full development of the productive resources of Sri Lanka

In 2000 its narrow it down to two core objectives;

• The maintaining of economic and price stability
• The maintaining of financial system stability

Vision and Mission of Central Bank

Vision

“A credible and dynamic central bank contributing to the prosperity of Sri Lanka.”

Mission

"Maintaining economic and price stability and financial system stability to support sustainable growth through policy stimulus, advice, commitment and excellence.”

Functions of Central Bank of Sri Lanka (CBSL)

Core Functions

Conduct of Monetary Policy

• Conduct of Exchange Rate Policy
• Management of the Official International Reserves
• Oversight of the Financial System
• Licensing, Regulating and Supervising of Banks and Selected Non-Bank Financial Institutions
• Provision of Settlement Facilities and the Regulation of the Payment System
• Issue and Distribution of the National Currency
• Compilation, Dissemination and Analysis of Economic Data and Statistics
• Banker to the Government and its agencies, and provision of current account facilities to LCBs and non-commercial bank Primary Dealers for Government Securities

Agency Functions

• Management of the Public Debt
• Foreign Exchange Management
• Fund Management and Custodian of the Employees’ Provident Fund
• Facilitating Financial Inclusion
• Financial Intelligence services to prevent, detect, investigate and prosecute Money Laundering and Terrorist Financing

Objectives of Central Bank of Sri Lanka (CBSL)

"Maintaining economic and price stability"

Price stability or stable prices means low inflation. Experience has shown that the economy performs well when inflation is low and is expected to be low. Interest rates are also low in these conditions.

"Maintaining financial system stability"

Financial system stability means the effective functioning of the financial system (financial institutions and markets) and the absence of banking, currency and balance of payments crisis.

Currency in Sri Lanka

The Central Bank of Sri Lanka has the sole right and authority to issue currency in Sri Lanka as stipulated in the Monetary Law Act No. 58 of 1949.

Legal Tender Currency

Legal Tender Currency is any official medium of payment recognized by law that can use extinguished a public or private debt or meet a financial obligation.

The national currency is legal tender in particularly in every country.

Current Note Series in Sri Lanka

Rs.20 Currency note

Predominant Colour: Maroon

Dimensions   : 128 x 67 mm

Front : Port of Colombo (a recent and an early view).

The bird - "Sri Lanka Serendib Scops Owl"

The butterfly- "The Baronet"

Back : "Ves Netuma" Dancer (Kandyan dance form) and "Geta bera drummer.Background - Guard stone with "Punkalasa" (pot of plenty), "Liya vela" (single floral design) and map of Sri Lanka.

Rs. 50  Currency note

Predominant Colour : Blue

Dimensions   : 133 x 67 mm

Front: new bridge at Manampitiya along side the old bridge and Demodara ancient railway arch bridge in the background.

The bird - "Sri Lanka Dull Blue Flycatcher"

The butterfly - "The Blue Oakleaf"

Back : "Vadiga Patuna" Dancer (Low country dance form)  and is "Yak bera" drummer.Background - Guard stone with "Punkalasa", "Liya vela" and map of Sri Lanka.

Rs. 100 Currency note

Predominant Colour : Orange

Dimensions   : 138 x 67 mm

Front: Norochcholai Coal Power Plant Project and Laxapana waterfall in the background.

The bird - "Sri Lanka Orange Billed Babbler"

The butterfly - "The Autumn Leaf"

Back : "Bharatanatyam" dancer (Classical South Indian dance form) and "Mridangam" drummer.Background - "Naga" guard stone, "Dvithva liya vela" (Double floral design) and map of Sri Lanka.

Rs. 500 Currency note

Predominant Colour : Purple

Dimensions    : 143 x 67 mm

Front:The World Trade Center and Bank of Ceylon Headquarters (in the city of colombo).An ancient Buddhist temple “Lankathilake Viharaya” in Kandy in the background.

The bird: Sri Lankan Emerald Collared Parakeet (Layard’s Parakeet).

The butterfly : The Ceylon Indigo Royal

Back : "Thelme Netuma" dancer ("Devol Maduwa" ritual - Low Country dance form) and "Yak bera" drummer.

Baackground - "Padmanidhi" guard stone, "Dvithwa liya vela" and map of Sri Lanka.

Rs. 1000 Currency note

Predominant Colour : Green

Dimensions    : 148 x 67 mm

Front : New Ramboda tunnel and the rock wall/hood at the same location in the background.

The bird - "Sri Lankan Hanging Parrot"

The butterfly - "The White Four Ring"

Back : "Malpadaya Netuma" dancer (Sabaragamuwa dance form) and "Davul bera" drummer.Background - Guard Stone with guardian deities, "Dvithwa liya vela" and map of Sri Lanka. 

Rs. 5000 Currency note

Predominant Colour : Gold

Dimensions    : 153 x 67 mm

Front : Weheragala Dam and Canyon Dam in the background.

The bird  - "Sri Lankan Yellow Eared Bulbul" 

The butterfly -  "The Lemon Migrant"

Back : "Nagaraksha" and "Guruluraksha" dancers (Low Country mask dance). Background - "Rathnapura" guard stone, "Kalpavrksa" (Wish-granting Tree) floral design and map of Sri Lanka.

Coins in Circulation

The denominations of coins mostly in circulation are:

Rs. 10

Rs. 5

Rs. 2

Rs. 1

A Brief History of the Currency of Sri Lanka

Kahapana - Earliest Coinage

The earliest coins in Sri Lanka are known as kahapanas or puranas. These are flat  pieces of silver cut from sheets or thin bars and trimmed to the correct weight and then stamped with various punch marks. They can be round, rectangular, square or multi-sided. Their weight had been adjusted by clipping the corners. The metal of the Kahapana has been found mostly to be silver. 

Kahapana Plaques

Swastika coins

These are rare and ancient Buddhist themed copper coins.It is a small Copper coin.On one side of the coin, there is an image of a walking tusker, a stupa drawn using three half moons, a swastika and a Bo tree with three branches inscribed in a square. On the flipside, there is a swastika, a trident and a stupa. However, when considering the coin as a unit of currency, it is probable that it was in the same category as a ‘Kahapana’.

Tusker and Swasthika Coin

Bodhi Tree and Swasthika Coin

Maneless Lion coins

This is a Copper coin. On one side, there is an image of a lion. On the other side, there are three or sometimes four dots. It is likely that these dots indicate the value of the coin.

Maneless Lion coins 

Lakshmi Plaques

Coins with a female figure carved into the face. These coins were produced in two ways: the coins were either plated or engraved pieces of Copper. They also came in different sizes. The plated kind were 1 ¼ inches in length and ½ inch in width.

Lakshmi Plaques

Kahavanu or Lankeshvara coin

These coins were either gold or gold-plated. They were distinguishable in terms of value as ‘Kahawanu’, ‘Ada Kahawanu’, ‘De Aka’ and ‘Aka’. On the face of the coin there is a human figure standing on a lotus stem.

Kahavanu

Roman Coins

Several types of Copper Roman coins were used in Sri Lanka. These coins were minted in Rome. The fact that these coins were found all over Sri Lanka.

Chinese Coins

These coins are made of Copper or Copper-rich alloys. Coins minted in different eras are different in size as well. There are no markings or images on the flipside of the coin.

Massa Coins

King Vijayabahu I added his name to the face of the coin. This coin was known as ‘Massa’. The practice of engraving the name of the King on coins continued from the beginning of the Polonnaruwa era until the end of the Dambadeni era.

Massa coin

Dambadeni Coins / Coins of the Middle Ages

The ‘Dambadeni Massa’ coin is in fact the same as the Massa minted in the Polonnaruwa era. It is also known as the ‘Sinhala Massa’.

Lion Coins

There is an image of a lion to the right of the human figure that appears on the face of the coin. These coins are known as ‘Lion coins’.

Cetu Coins

This coin is a close imitation of the Dambadeni Massa. There is an image of a cow on one side and a standing figure (similar to that on the Dambadeni Massa) on the other. This coin is made of Copper.

Coins used in Portuguese Period

• Saint type coins (St. Thome) - Gold

This series of coins bear the Portuguese Coat of Arms on one side (with GA imprinted on either side) and an image of a Saint on the flipside.

• Tanga

• Malakka – Silver

The Portugal Coat of Arms appears on one side of the Malacca coin. On either side of the seal the letters AM, MA or DM can be seen. AM is the abbreviation for Asian Malacca. Similarly, MA and DM are abbreviations for Malacca and De Malacca respectively.

• Cruzado

• Ginimassa – Silver

The coin ‘Gini Maessa’ is commonly known as ‘Gini Massa’. There is an inscription of a gridiron on its flipside. Therefore, this coin should be known as “Gini Maessa” which means gridiron in Sinhala.

• Cakram

• Panam (Gold/Silver)

• Laarins

• Gold Pagodi

Coins used in Dutch Period

• Rix Dollar 

• Duits

The coin that was most commonly used in transactions of this period is the Duit. This is a type of very small Copper coin.

• Coins from Zeeland

• Hollandaise coins

• Coins from Utrecht
• Coins from West freaseland

• Coins from Guilderland Stuivers

The first Bank Note

Sri Lanka’s first series of banknotes was issued on the 10th of May, 1785. The first notes had values equivalent to 50, 100, 500 and 1000 Pathaga. Afterwards, notes of 1,2,3,4,5,10 Pathaga were also printed.

Banknote equivalent to one 'Pathaga'

Coins used in British Period

• Tharaka Pagodi
• Farthing  
• British Stuiver
• Fanams
• Rix Dollar (Silver coin - 1825)
• Half Rupee
• Rupee (Indian Rupee)
• Quarter Rupee

Duits

There are two types of coins the English used for transactions in Sri Lanka. The first was a gold coin minted in Madras known as ‘Tharaka Pagodi’ or the Star Pagodi.The second type of coin was a Copper one.‘United East India Company’ was printed on one side with the year it was issued. The Royal Coat of Arms and the value of the coin could be seen on the other side of the coin.They also issued Thuttu coins in 1801.

During the British period, notes were issued by three authorities

1. Notes Issued by the General Treasury (1827 – 1855) - Pound Notes
2. Notes issued by the Private Banks, namely, (1844 – 1884) 

     The Oriental Bank Corporation 

     The Chartered Mercantile Bank of India, London and China. 

     Hong Kong and Shanghai Banking Corporation 

     Asiatic Banking Corporation 

    

  3. Notes issued by the Board of Commissioners of Currency (Under Government of Ceylon) (1884 – 1950) 

      The Board of Commissioners consisted of 

          The Treasurer 

          Colonial Secretary 

          Auditor General

Post Independence Period Since Establishment of the Central Bank of Ceylon

Coins issued by the Central Bank of Ceylon

The notes issued by the British were used in Ceylon up to1951 and the coions were used up to 1963. The first Sri Lankan coin series was introduced in 1963. The Emblem of Ceylon was introduced in the observe of this coin series. This series consisted of coins in the denominations of; 

One cent (aluminium)
Two cents (aluminium)
Five cents (brass)
Ten cents (brass)
Twenty-five cents (copper / nickel)
Fifty cents (copper / nickel)
One rupee (copper / nickel)
Rupees 5 (nickel / brass) and Rupees 2 (copper / nickel) circulation coins were introduced in 1984 instead of the five rupee and two rupee notes.

In 2005, the Central Bank issued a new series of circulation coins of Rs.5 and Rs.2 by changing their weight and alloy, while Re. 1, Cts 50 and Cts.25 coins were issued by changing the size, alloy, weight and colour.  These new coins are circulating along with the previous issued coins.

Eleven series of currency notes issued by the Central Bank of Sri Lanka since 1950 are as follows;

1. King George VI series -  1951
2. Queen Elizabeth II series - 1952
3. Armorial Ensign of Ceylon series - 1956
4. S W R D Bandaranaike Portrait series - 1962
5. King Parakramabahu the Great series - 1965
6. Armorial Ensign of Sri Lanka series - 1975
7. Fauna and Flora Series - 1979
8. Historical and Archaeological series - 1981
9. Historical and Development series - 1987
10. Sri Lanka Heritage series - 1991/2005
11. Development, Prosperity and Sri Lankan Dancers series - 2011