BMD spoke with Mr. H A Karunaratne, a Deputy Governor of the Central Bank of Sri Lanka (CBSL) and the Chairman, Institute of Bankers of Sri Lanka recently.
Excerpts from the interview:
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H A Karunaratne Mr. H A Karunaratne is currently a Deputy Governor of the Central Bank of Sri Lanka (CBSL) and has extensive experience in the financial services sector here and overseas. He is a Member of the Monetary Policy Committee and Chairman of the Financial System Stability Committee, National Payments Council and EPF Investment Oversight Committee of the Central Bank. He serves as the Chairman of Institute of Bankers of Sri Lanka, Credit Information Bureau of Sri Lanka and West Coast Power (Pvt) Ltd. In addition, he also serves in the Boards of Securities and Exchange Commission, Colombo Dockyard and Insurance Regulatory Commission of Sri Lanka among others. During his thirty-three year career some of the key positions held by him have been Assistant Governor and Secretary to the Monetary Board, Secretary to the Monetary Board Advisory Audit Committee, Director, International Operations Department, Director, Financial Intelligence Unit of Sri Lanka, Additional Director, Domestic Operations Department and Chief Dealer of the Central Bank of Sri Lanka. |
Q: What are the main courses of study offered by IBSL at present?
We have three types of courses. Our regular curricular consists of our main academic program in Applied Banking and Finance covering two stages of professional banking and finance education, i.e., Intermediate in Applied Banking & Finance (IABF) and Diploma in Applied Banking & Finance (DABF). In addition to our core program, the College of Banking and Finance which is the training arm of the IBSL, offers short term, three months to one-year diplomas and certificate programs, seminars and workshops and Postgraduate Executive Diploma in Bank Management.
Q: What are the main courses of study offered by IBSL at present?
We have three types of courses. Our regular curricular consists of our main academic program in Applied Banking and Finance covering two stages of professional banking and finance education, i.e., Intermediate in Applied Banking & Finance (IABF) and Diploma in Applied Banking & Finance (DABF). In addition to our core program, the College of Banking and Finance which is the training arm of the IBSL, offers short term, three months to one-year diplomas and certificate programs, seminars and workshops and Postgraduate Executive Diploma in Bank Management.
Q: Are these courses exclusively for bank employees? What is the eligibility for enrolment?
Besides all banking sector employees, students with GCE(O/L) and GCE(A/L) qualifications are eligible to follow the Banking & Finance core programmes of ”IABF” and ”DABF”. The IBSL programs are offered at an affordable cost in comparison to other professional qualifications. Interest free monthly installment plans are provided by the People’s Bank, National Development Bank, Commercial Bank of Ceylon PLC and HSBC for the course fee.
The examinations are conducted twice a year and it is possible to obtain both IABF, DABF qualifications within two years. The examinations are conducted in Sinhala, Tamil and English medium.
The IBSL has a registered student population of 25,000 and annual registration of around 5,000 students. In addition it has Associate, Fellow and Senior Fellow Members and has so far nurtured more than 85,000 students.
Q: As the only training institute for banking are you satisfied with the existing curricular? Any plans to upgrade courses to a degree level?
Our current certificate and diploma programs are a gateway to many other advanced courses offered in the country. For example, our Diploma in banking is an intermediary qualification that provides eligibility for Masters degree at the Postgraduate Institute of Management (PIM) and University of Colombo.
Also, our partnership with the Northumbria University has given our students the eligibility to enter the final year of the university’s degree courses eliminating the first few years of study.
We recently signed an agreement with the Asian Institute of Technology(AIT) based in Bangkok, Thailand to facilitate in conducting their prestigious Masters Program in Professional Banking in Colombo.
Modern banking sector and its scope are rapidly changing continuously. Therefore, we continue to engage in changing and upgrading our curricular to suit the current demands and changing trends in the industry.
We have appointed a high level syllabus review panel for this purpose composed of university professors, professional bankers, and other stakeholders and the existing curricular will be reviewed and finalized soon.
We now have a new state of the art building “IBSL Towers” in Elvitigala Mawatha, Narahenpita and the new auditorium with a seating capacity of over 400 will be completed soon. We intend to extensively use it for lectures and seminars. IBSL Towers owns a modern IBSL library dedicated for the banking industry which is considered as a prerequisite to upgrade its status. It is priority on our agenda to convert the diploma courses to a degree status and discussions are ongoing with the University Grants Commission, the regulatory authority for Universities to achieve this status for our curricular.
Our panel of lecturers are professionally qualified bankers and academically sound individuals with proven track records. The CBSL alone has about 20 PhD holders and we also draw resources from the industry for our lecturing and to serve in the syllabus review panel.
The IBSL has extended its diploma courses to reach other parts of the country and therefore programs are held in Kandy as well. Besides, accredited centers have been appointed in other parts of the country to support our academy.
Q: What are the current trends in banking?
Digitalization is the overriding trend today. Many banks consider the shift to digital banking solutions a necessity to remain relevant in the industry as younger customers, Gen Y and Gen Z enter the workforce and prefer to avoid going to a physical bank branch for transactions.
Mobile banking has become a necessity for banks to be competitive. Most customers prefer the flexibility of conducting banking activities at their convenience rather than during banking hours. While early mobile banking applications enabled simple functions such as checking of account balances, payment of utility bills and fund transfers, the frequency of usage has prompted banks to offer additional features such as setting spending budgets, restricting payments to gambling websites, placing temporary holds on cards and using fingerprint scanning or facial recognition to log into the account.
While online banking offers all facilities provided by mobile banking it offers additional facilities such as opening of new bank accounts and sharing of customer data with third parties in a secure manner (with the express consent of the customer). In the case of the former, customers will generally still have to visit a physical branch, but this would only be to complete the formal verification of the customer before opening the account, thereby ensuring that most of the account opening process can be completed online.
Another trend is the rise of robot-advisors which has fundamentally changed the way investment decisions are taken. Artificial Intelligence (AI) has enabled predictive analytics to guide the investment decision by analyzing past trends to identify potentially profitable trades before the market moves.
Neobanks (known as challenger banks in the United Kingdom) are fundamentally changing the banking culture. Even though they have a banking license like traditional banks, neobanks do not operate physical branches and have online-only operations. All banking transactions are carried out via mobile banking applications, with withdrawals via ATM cards issued by the neobank and deposits via either transfers from other bank accounts or through physical cash deposits at certain locations like other banks.
Q: Is our banking industry ready for these developments?
With several new players entering the banking sector, the sector is set to witness unprecedented changes in the future. Staying the same is not an option, in this dynamic environment. Banks are already revamping their business models to include new non-bank Fintech players to the banking value chain.
Our banks have started to open up alternative delivery channel through bank-Fintech. Bank-telco partnerships, cloud computing and block chain technology will further improve efficiencies, lower transaction costs and promote financial inclusion. Banks are moving towards creating differentiation through digital-only banks (branchless banking), biometric enabled ATMs, smart banking through the usage of artificial intelligence, green financing, etc., as these factors could become critical in a competitive market in the future.
As the regulator, the Central Bank is committed to achieve a balance between regulation, innovation and digitalization, while taking regulatory measures to minimize technological risks.
Banks are now focusing on long term sustainable financing, SME and project finance lending and creating a bigger regional and global presence to improve performance and competitive advantage.
Q: What are the biggest challenges banks face today?
Balancing between regulation and innovations like FinTech, data science, Artificial Intelligence (AI) etc is the biggest challenge. Fintech, AI, data science, etc., are part and parcel of the financial sector growth. The regulator and other bodies are already assessing the impact of such innovations and the possibility of their adoptions by assessing their benefits and impacts both regionally and globally.
The Central Bank and the banking sector actively explore measures to mitigate emerging risks like cyber security threats for which regulations have already been introduced to the regulatory and supervisory framework.
A Technology Road Map has already been issued to the banking sector. In order to further strengthen the resilience and to mitigate the risks arising from the adoption of technology in banks, a Direction on Technology Risk Resilience, in line with international standards and best practices will be issued shortly.
Another key challenge is prudent risk management. Credit risk has been considered the biggest risk in terms of volume and liquidity risk is considered a major risk in terms of severity. Since loans and advances and investments together form the major part of the balance sheets of banks, managing credit risk (default risk and concentration risk) become critical. In addition, emerging risks, such as cyber security threats, systemic risk through interconnectedness, risks arising from excessive foreign borrowings and corporate governance issues are some of the other big risks in the banking sector. Other business risks, such as interest rate risk, FX risk operational risk, reputation risk, compliance risk, etc. also impact the sector’s operations. Increased AML/CFT related risk with the development of FinTech also need to be addressed.
Q: Does IBSL guide bankers to meet customer expectations?
Customers expect banks to improve operational and infrastructure standards in line with international best practices, to deliver the service with expected quality and costs effectively. Banks need to have a better understanding on the financial needs of the customers and to develop a customer-centric business model. Market conduct and business ethics are also important in delivering quality service to banking customers. Misleading advertisements and marketing tactics for deposit mobilization should be avoided. Unethical business practices like hidden charges should be avoided. Banks, especially branches, should comply specially on customer charter requirements. A large number of requests for regulatory relaxation are emerging which are not appropriate for a sound financial system.
IBSL conducts regular programs to enhance the awareness among banking community on latest developments and threats and in the process of revising its curriculum to meet the challenges In this area as well.
Q: Digital transformation is occurring at every level in the banking industry. What is the present situation in Sri Lanka?
With the emergence of fintech and advanced technologies like blockchain, the business models of banks may change significantly over time, while opening up new business opportunities. These developments lead to emerging risks for the banking sector. Accordingly, adoption of these new technologies will be encouraged, while ensuring the safety and soundness of the banking system.
Q: How are the demands of Gen Y and Gen Z represented in the digitalization process?
Gen Y and Gen Z – the population below 39 years old represent two generations that were born with the emergence of the digital era. Their lifestyle, habits and hobbies are being shaped and moulded with the influence of new technology and digital trends. Also, needless to say, that their career aspirations also represent a wider career choice as expanded by digitalization.
As mentioned earlier, online and mobile banking solutions are at the heart of the digitalization process, with banks striving to improve the quality of such solutions provided to customers as they have recognised the importance of online and mobile banking solutions in attracting new customers. The presence of cash deposit machines has further reduced the need for customers to visit physical bank branches, while some banks have introduced QR code payment methods, which enable payment for goods/services by scanning a QR code using the bank’s mobile banking application, to further simplify the process of payment to merchants.
Taking cognizance of these developments in the industry, IBSL is working towards continuously updating its curriculum to capture the changes in the world of banking with the emergence of digitalization.
IBSL also identifies the need of adopting innovative delivery channels as brought about by digitalisation for our services. Modernisation of our facilities and use of digital technology will help our students to make learning a more interactive experience. bmd
The sector comprises 31 licensed banks, including 5 specialised banks, 13 domestic private banks and 13 foreign banks. In terms of assets size, licensed banks are categorized as large banks, medium banks and small banks and four banks are ranked amongst the top 1000 banks in the world by the “Bankers Magazine”.
The sector’s annual average growth is around 15% during the last five years and accounts for over 60% of the total assets of the Financial System. The banking sector credit to GDP remains around 40%. At present the sector is mainly funded by the depositors, accounting for more than 70% of the total assets, whilst shareholders contribute just over 8% of the total assets.
The banking sector has strengthened due to stronger supervisory and regulatory framework and improved performance. Banks have been able to meet the higher requirements under Basel III, both in terms of capital and liquidity. Capital positions are expected to improve further with measures taken by banks in this direction.
The sector’s credit is well diversified over several sectors in the economy and non-performing ratios have been maintained at relatively low levels. Capital has been infused to meet enhanced capital requirements.
Meanwhile capital levels of banks are expected to strengthen further as a result of enhanced capital requirements and other regulatory requirements. Banks are expected to meet the enhanced requirements for high quality capital and those which are unable to comply, will be encouraged to consolidate on a voluntary basis.
As the sector grows, it is set to witness greater risk exposure. Banks relying on FinTech provided as delivery channels may generate new risks if not managed well.
February 2020