Tea with Nihal Fonseka

Revamp, remodel educational system

Hiran H.Senewiratne

Sri Lanka should revamp and remodel the educational system to produce a knowledgeable and skilled people to face the new challenges in the world, DFCC Bank General Manager/Director and Chief Executive Nihal Fonseka said.

He said most of the countries in the Asian region specially Singapore; Malaysia spends more than 20 per cent of the GDP for education. This has paved the way to achieve a rapid economic growth in those economies.

“Further, Sri Lanka have to invest in educational system for future prospects and also encourage professionals and skill people to come and work for Sri Lanka from other countries in the world. With all that we have to bring law and order in the country on day today operational basis to build the investment confidence in the country, which is the need of the hour at this juncture,” he said.

Q: Vardhana Bank, which was formally Merc Bank, has completed four years with DFCC. What is the current progress of both Banks?

DFCC which owns 95 per cent of Vardhana shares has operationally integrated many Vardhana functions with DFCC and also changed the IT system to the DFCC platform. Initially Vardhana was focusing on DFCC customers but now they are expanding to other segments. We also started promoting Vardhana Bank with the DFCC brand. Now Vardhana has 34 branches including those that are located in the 14 DFCC offices.

With this acquisition, we have provided a full banking service package to our customers. Before the acquisition DFCC customers had to go to some other commercial bank to obtain additional services.

Now, DFCC supports the SME sector and project financing with Vardhana giving additional services including working capital, overdrafts, trade finance and remittances as unlike DFCC it is positioned as a fully-fledged commercial bank.

Q: What is the DFCC business model and how do you differentiate from other banks?

Fifty per cent of DFCC business comprises the SME portfolio and the balance, larger corporate customers. Our main difference from other banks is that we are net transferors of resources to other regions of the country outside the Western Province.

About 50 per cent of our lending exposure is outside the Western Province. For this purpose we obtain long-term resources either from overseas development partners of Sri Lanka with the support of the government or from institutional sources in Colombo because the customer deposit base of DFCC itself is relatively small.

Commercial banks use their outstation branches mainly to gather customer deposits and usually only a part of what they obtain from other provinces are lent in those areas.

Q: Do you have any idea of incorporating both entities into one company in the future?

This might happen sometime in the future but no decision has been taken. DFCC is a specialised bank established under an Act of Parliament and the Vardhana Bank is a commercial bank is set up under the Companies Act.

Therefore we have to consider the legal position, whether to go as it is or function as one entity. But from the point of the customers’ it would create no difference where the services are concerned.

Q: What is the opinion about the newly formed joint venture of Investment Bank with Hatton National Bank and is there any plan to penetrate overseas?

Earlier, the DFCC had a small investment-banking department within the organisation. HNB also was involved in this business and also had an entity actively trading in government debt securities. This

Joint Venture will be a fully-fledged Investment Bank offering a greater range of corporate finance advisory and other investment banking services as well as stock broking and debt trading within one umbrella and will bring all the complementary strengths and capabilities of both institutions to the fore.

In due course we are planning to penetrate into the SAARC region. India has a well-developed investment banking system and competition will be high but we will have opportunities in Pakistan, Bangladesh and other SAARC countries with special niche products.

Q: Has DFCC Bank won any awards and international accolades?

DFCC Bank was recently granted special recognition for two of their development projects by Philippines based Association of Development Financing Institutions in Asia and the Pacific (ADFIAP).

We have been adjudged winners of their 2008 Awards in the categories Contribution to Rural Economic Development for our implementation of Sri Lanka’s Renewable Energy Project as part of which more than 100,000 rural households have obtained solar energy.

The other award was for financing innovative technology to produce electricity during the conversion of coconut shells into activated charcoal .

Q: Is DFCC involved in micro finance and infrastructure projects in the country?

We don’t have the distribution to directly undertake microfinance but we are involved with institutions that provide micro finance. We have seen a significant improvement in the area of micro finance in the last few years but more needs to happen. We are very much are involved in infrastructure projects related to telecom and power generation projects.

We have been indirectly involved in other infrastructure development through building capacity of contractors in the country who are involved in the construction industry, because after the tsunami many construction projects started happening and our construction industry was lacking in resources.

Q: Sri Lanka’s current interest rate and the inflation is very high. How would you look at this situation?

High inflation is a big threat to the entire economy as well as the banking sector. It poses a problem for banks due to the drop in credit demand on the one hand and low level of savings on the other hand. With this situation people don’t think of borrowing money from banks for projects, as projects can’t deliver a reasonable return to the investor.

Also, those who have already borrowed find it difficult to pay back loans. Therefore, profit margins of banks will reduce and on top of that non-performing loans will increase.

Inflation actually affects the poor man more than the rich person and robs his financial savings, as the poor don’t have savings in assets that can withstand high inflation. In our current situation the way out as a country is to improve the productivity and cut down cost on unnecessary and unproductive expenditure.

Q: What is your view on Sri Lanka’s ethnic conflict and what sort of a solution do you suggest?

The suitable solution would be a political solution. In my view we have a terrorist and minority right problem which has to be tackled parallel.

Today these problems have become complicated and polarised; therefore, we have to tackle in a much broader way.

Profile

Name: Nihal Fonseka

School Attended - Loyala College, Maristela College Negombo, St Peters College Bambalapitiya

Educational Qualification: Academic: Bachelor of Science (B.Sc.), University of Ceylon

Professional: Fellow of the Institute of Bankers-UK

Civil Status: Married with two children

Current Position:

The Chief Executive Officer/ Director/ General Manager - DFCC Bank
Chairman of the Colombo Stock Exchange.
Chairman Accuity Partners (New Investment Bank)
Director Commercial Bank of Sri Lanka.