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| Sunday, 9 June 2002 |
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| News Business Features Editorial
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People's Bank records biggest ever operating profit by INDUNIL THENUWARA The People's Bank will be investing Rs. 700 million during this year to upgrade its information technology platform. This is part of the bank's strategic plan which was implemented in June 2001. "One of the barriers to improving the bank's efficiency is the lack of sufficient IT and telecommunication infrastructure. We hope to change this situation with this investment," Chief Executive Officer and General Manager of People's Bank Derek Kelly said. He was speaking to the Sunday Observer about the bank's performance during the financial year ended December 31, 2001 and the changes the three-year strategic plan has brought about in its operations. "In June 2001, we put our new strategic plan into action. The task is daunting, but the results have already proved to be encouraging and we are forging ahead implementing the new plan with urgency, courage and confidence," Kelly said in the People's Bank Annual Report for 2001. "In any restructuring, there is a degree of pain for all stakeholders except the customers. Implementing the new plan is overwhelming enough. Active and passive resistance in all its forms have to be tackled. Although we faced the initial problems, we have now overcome our differences and are back on track," he said. As a result of the strategic plan, People's Bank recorded the highest operating profit in its 40-year history last year. The operating profit of Rs. 1.7 billion has reversed the recent trends of operational losses and is a 655 per cent growth over the Rs. 304 million operating loss of 2000. The total net revenue grew by 25 per cent to Rs. 9.9 billion from Rs. 7.9 billion in 2000. Net profit after tax saw a growth of 116 per cent to Rs. 308 million from a loss of Rs. 1.8 billion in 2000. Some of the key factors that have contributed to the growth in net revenue, according to the annual report, are the growth in the pawning business and the efforts that have gone into the control of growth of the weighted average cost of customer deposits that have enabled the bank to maintain the net interest margin at consistent levels. Pawning, one of the main income generators for the People's Bank, saw the product balance increasing to Rs. 12.6 billion from Rs. 10.4 billion in 2000, a growth of 20 per cent, Bertal Pinto-Jayawardena, the bank's Head of Finance, MIS and Risk Management said. "These results indicate our success in this area amidst intense competition for this business from the banking and non-banking sector. We account for 40 per cent of all pawning business," he said. The growth of the deposit base had been one of the key targets of the strategic plan. Accordingly, customer deposits have grown by Rs. 12 billion or 10.8 per cent to Rs. 127.5 billion in 2001 from Rs. 115 billion in 2000. According to Kelly, People's Bank has about four million customers. It accounts for 26 per cent or one fourth of the entire banking industry's deposit base. Two of its flagship products - Jana Jaya and Vanitha Vasana - were repackaged and relaunched during the year under review. The number of Jana Jaya accounts and balances increased by 35 per cent and 39 per cent respectively. Vanitha Vasana accounts and balances grew by 11 and 19 per cent respectively during the period 2000-2001. NRFC deposits, which were worth US$ 27.4 million in 2000, grew by 26 per cent to US$ 41.45 million in 2001 while home remittances grew by 21 per cent. The bank now accounts for 30 per cent of all foreign currency accounts. The Avurudhu Ganu Denu had netted in Rs. 1.1 billion as customer deposits, a 30 per cent increase over the same of the previous year, Pinto-Jayawardena said. Kelly said: "As a result of historic ill-judged lending, at the end of December 31, 2001, the loans and advances classified as non-performing amounted to Rs. 25.4 billion. Provisions required for potential loan losses represents 12.7 per cent of our loan book. Recoveries worth two billion rupees were made by the bank during the year. About 25 large institutions account for over 40 per cent of the bad loans. Initiatives including litigation have been instituted against them. "Recovering non-performing loans is a tough task, given the slowness of the legal system and attempts to interfere with the due process. The hole in our balance sheet causes all sorts of impediments and we have to operate in a much more risk averse manner than many of our competitors. Recovery of these non-performing loans will be a primary focus in 2002 while we also intend to reduce the non-performing advance ratio to 15 per cent over the next two years," he said. Kelly said: "We take special comfort from the letter of support issued by the government guaranteeing our autonomy and independence while underwriting our capital deficit." The bank's total operating costs had also grown by eight per cent from Rs. 8.2 billion in 2000 to Rs. 8.8 billion. Efforts had been made during the year to manage costs through the implementation of new capital expenditure review and approval procedures and new expenditure authorisation procedures. The bank hopes to bring down the cost-income ratio to 74 per cent during the next two years. The People's Bank Treasury was completely overhauled during the year. It structured one of the largest interest rate swaps in Sri Lanka; a US$ 10.8 million deal for Ace Power Generation Ltd. Exchange profits and capital gains grew by 23 and 365 per cent respectively during the year. The bank has 512 branches and savings centres spread throughout the country and one of the largest automated teller machine networks comprising 90 machines. It has a staff of over 11,000. As part of the strategic plan, steps have been taken to retire most staff members who have reached 55 years of age while recruiting and training educated and qualified youth. A performance-based incentive scheme has also been implemented to improve service and efficiency. Steps were also taken last year to empower the bank's managers to run their branches like independent businesses. The managers are also responsible for realising business goals including the collection of loans they have initiated. The top 100 of the bank branches which account for 70 per cent of its operating profits have been completely redesigned to align their infrastructure facilities and service quality with other strong banks, the annual report said. Only 18 branches out of the total network had shown losses last year. People's Bank has 11 branches and four extended service centres in the Jaffna and Vanni districts. There are plans to relocate some of these branches to more accessible and convenient locations to reflect the relocation of customer distribution and economic activity. "The return to profitability achieved by the People's Bank in 2001 signals a new beginning. With the total commitment and participation of the staff, the bank will achieve the targets and milestones set out in its strategic plan, and it will achieve financial 'break out' from the constraints of the recent past," the annual report said. |
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