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| Sunday, 22 June 2003 |
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Business |  |
| News Business Features Editorial
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DFCC Bank seeks new opportunities The DFCC Bank is attempting to position itself to offer a range of banking and insurance products as traditional product differentiation is fading away with concepts like virtual banking and 'bancassurance' taking root. The bank also sees opportunities in the financing of infrastructure projects and services particularly in sectors such as power generation, information and communications technology and small and medium enterprises (SME) development. It also anticipates a role in the reconstruction and rehabilitation of the North and East, if there is sustained peace. The bank is exploring opportunities that seek to address the inherently riskier nature of its core activity of project finance within the limited diversification options available to licensed specialised banks at present, states Chief Executive Officer Nihal Fonseka in his review in the company's 2003 annual report. Fonseka attributes the bank's strong performance to improved asset growth, significant upgrading in the quality of the loan portfolio and breakthroughs in resource mobilisation. These measures, together with the removal of the surcharge on income tax, earned a profit after tax for the bank excluding undistributed profits of subsidiaries and associates of Rs 856 million, an increase of 36 per cent. On the development banking debate, he says development banks that assume high start-up risks in the long-term projects they finance see no justification in passing the resultant low risk downstream business to commercial banks to 'cherry pick'. In an environment of competition and level playing fields, it is logical that development banks should have the freedom to balance their higher risk profiles with appropriate business strategies. These include sourcing additional revenue streams through new products and services and diversification and consolidation through strategic alliances, mergers and acquisitions. Fonseka says: "Otherwise, they will not have the financial muscle to access long-term funding that is essential for undertaking development lending". DFCC continues to be strong in its development role, as evident by its activities fostering the SME sector over the past two decades. Around 2,800 SMEs obtained loans worth over Rs 5.4 billion during the year under review while the present exposure to this sector is around Rs 9.3 billion, through 7,300 enterprises providing over 35,000 sustainable jobs. With an over 60 per cent share of total loan approvals, DFCC is a leader in SME development under the Asian Development Bank-funded Sahanya credit scheme. Fonseka states that the bank was the largest provider of loans for grid-connected mini hydro power generation and off-grid rural electrification through village hydro schemes and solar home systems under the energy services delivery project which closed in December 2002. These long-term loans totalling Rs 700 million were disbursed for greenfield projects that addressed national issues. He states that criticism has been levelled at banks for being too aggressive in their debt recovery strategies under parate execution rights. "As a development bank, we opt for the realisation of security only as a last resort after every attempt at restructuring and rehabilitation have failed. This explains why non-performing loans in our portfolio remain classified for long periods. It is better for the assets of a failed enterprise to be put to productive use through an efficient process of changing ownership or management rather than prolonging a terminal sickness that will ultimately be a burden on the employees, support institutions and society," he says. He further states that the country needs to rewrite its Banking Act and Exchange Control Ordinance if we are to become a regional financial services hub. A revamping of several laws affecting the financial sector is urgently required to permit easier convergence, consolidation, cross-selling of financial products, exchange of information and harnessing synergies while having necessary safeguards to maintain competition, customer protection and privacy. Fonseka is of the view that such consolidation in the financial services sector should be encouraged to avoid fragmentation through inefficient small players. Financial sector reforms presently receiving government attention will have to be implemented without delay. The Board of Directors of DFCC Bank are M.L. Mack (Chairman), M. Amarasuriya, T. Caglayan, M.A.R.C. Cooray, A.N. Fonseka, G.A.E. Gunatileke, Dr T.N. Jinasena, S.N.P. Palihena, M.R. Prelis and R.T. Wijetilleke. |
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