The banking sector in Sri Lanka continues to be one of the country’s largest and most promising sectors with the pandemic delivering new opportunities to capitalise on, a new report has revealed.
Financial advisory firm Alpen Capital took views from the top executives of leading banks in Sri Lanka on their outlook for the banking sector as well as the impact of Covid-19. Its report highlights resilience and competitiveness of the sector despite challenges exacerbated by the pandemic.
Strategic acquisition of finance companies and smaller banks, and accelerated digitalisation paves the way for further growth. These provide opportunity for Sri Lankan banks to reduce operating costs, grow low-cost fund base and drive strategic investments going forward, the report suggests.
“Sri Lanka, like most other economies, has had to cope with a host of economic challenges due to the disruption caused by the Covid-19 pandemic amongst the global financial markets,” says Sharmin Karanjia, senior director, Alpen Capital. “However, the banking sector remains one of the largest and most promising sectors for the country.”
With curfew measures implemented in 2020 across the island, banks were forced to focus on their digital channels in order to serve people remotely. While there was already a move to incorporate technology and provide digital financial services prior to the pandemic, this only accelerated both the pace of improvements made by banks, as well as the pace of adoption of non-traditional channels by customers.
According to Alpen Capital, the wider reach of these online services, with more and more people getting accustomed with using these services, has presented banks with opportunities to reduce costs in the long
term and has significant potential for growth.
The report says that Central Bank of Sri Lanka (CBSL), the monetary authority of Sri Lanka, is currently encouraging market driven consolidation between small and larger banks. While the government also brought forward a proposal in its 2021 budget for finance companies which are under financial and regulatory stress to merge with the parent commercial banks where applicable.
In 2020, the CBSL also took several steps to create awareness and encourage the adoption of digital services, including initiating the ‘LankaQR’ code standard for local currency payments. The aim is to move towards a less-cash society while increasing financial inclusion in the country.
The report also suggests that banks could also benefit through collaboration with fintech players, such as telecommunication companies in the growth of their digital platforms.