BEST BANK: COMMERCIAL BANK
All the reasons why Commercial Bank wins this award every year remain in place. It is Sri Lanka’s best private sector bank: an accolade, a title equity market investors continue to bestow as well via a price-to-book valuation premium averaging 1.3 times its nearest competitor.
Commercial Bank’s long-term strategy did not change much during 2017, but it continues to be extended and refined. Consumer and SME both remain a big focus in a country where many of the biggest companies are still state-owned.
Digitisation is also deepening, although the bank is still opening branches to catch up with big state-owned competitors like Bank of Ceylon and People’s Bank. As a result, Commercial Bank opened six new branches and 100 new ATMs during 2017, bringing the respective totals up to 261 and 757.
It also launched a new “Bank on Wheels” concept to serve remote rural communities in the North and East.
Bank officials highlight how Commercial Bank’s overall cost-efficiency drive plays into its branch-opening programme. For one of the ways it is reducing costs is by maximising space.
In the past, branches were up to 4,000 square feet. Now they are a maximum of 1,500 square feet and are generally staffed by two employees rather than 10.
This helped improve the bank’s cost-to-income ratio from 53.03% to 51.04% during the 2017 financial year according to SNL figures. However, officials say the figure will almost certainly come under pressure in 2018 as it renegotiates its three-year staff emolument agreement.
In terms of digitisation, the bank continues to record strong growth too. Its online banking base grew 22.5% during 2017 and its mobile banking one grew 26% to 570,000 customers. Greater automated account opening is one new initiative it highlights in this area.
In a first for Sri Lanka, Commercial Bank enabled customers to apply for a personal loan online, although they still have to follow up with the branch afterwards. Yet, officials point out filling in mandates online helps another of the bank’s cost-saving and environmental initiatives by saving paper.
Commercial Bank’s other big focus is SME lending and it retains its crown as the country’s largest lender. New initiatives in 2017 included the launch of a “Biz Club” with training programmes including the possibility of participating in overseas training.
The bank strong risk controls and forward looking initiatives all play into steady net income growth and improving financial metrics. Net profit rose 10.1% in dollar terms to $108.99 million according to SNL.
Officials were also pleased to see the bank’s NIM rise from 3.62% to 3.74%, while NPLs fell from 2.18% to 1.88%.
BEST INVESTMENT BANK: NDB
This is the second time we have given out this award in Sri Lanka and the recipient is once again NDB, the majority-owned subsidiary of private sector lender, National Development Bank.
It is by far the most active player across ECM, DCM and M&A, although overall volumes remain severely constrained by Sri Lanka’s messy politics, which are keeping the privatisation process on the backburner. No one expects this to change until after presidential elections in 2020, although foreign investor interest did start to pick up again during 2017 leading to net inflows of $226 million.
Instead, NDB has looked offshore for its most interesting deal of the past year, the $26.99 million flotation of Ooredoo Maldives, which listed last summer. This made NDB the first Sri Lankan bank to undertake a foreign IPO. The deal is also a record-breaker for the Maldives.
A second transaction also demonstrated how NDB has taken market norms from elsewhere in the region and brought them to Sri Lanka. For when it came to the $6.31 million IPO of RIL Property, NDB introduced the concept of cornerstone investors for the first time.
On the debt side, bankers note that issuance dropped off during 2017 thanks to uncertainty about the government’s tax policy, but has begun picking up again this year.
The biggest issuance volume has come from banks shoring up their capital position ahead of Basel III implementation. During the first quarter of 2018, it executed deals for Sampath and DFCC Bank.
Where M&A is concerned, the bank completed a number of deals, which closed during the awards period.
These included Dialog Axiata’s acquisition of Colombo Trust Finance, which included a mandatory share offer and the sale of a controlling stake in Unipower to CIC Holdings. Here NDB executed the sales using a three-pronged process to screen potential partners for a strategic fit.
The investment also acted as financial advisor for a group restructuring of Hemas Holdings, a diversified conglomerate with businesses spanning leisure, pharmaceuticals and fast-moving consumer goods.
In all, NDB calculates that it completed 40 transactions during the course of the 2017 calendar year amounting to LKR 55.1 billion ($360.4 million) for clients across Sri Lanka, the Maldives and Bangladesh where it teamed up with its sister company on a pharmaceutical M&A deal.
BEST BROKER: ASIA SECURITIES
This was an extremely difficult award to judge because the reality is Sri Lanka has two equally good brokerage firms with strong international roots, a factor that helps both to master and improve Sri Lanka’s domestic equity markets.
CT CLSA has long been a dominant player, a position it strengthened when CLSA purchased a 25% stake in 2014. It captures a lot of the foreign flow business and has very well regarded research.
And then there is Asia Securities, run by Dumith Fernando, who acquired the business in 2015 after a career in Hong Kong encompassing senior roles at Credit Suisse and JP Morgan. In a small market, it is much easier for one person to make a big impression and that has certainly been the case in Colombo over the past three years.
In that time, Asia Securities has doubled its market share to about 10% in terms of trading turnover, while Fernando pretty much personally brokered the largest takeover of a listed company in Sri Lankan history – the $82 million acquisition of Singer Sri Lanka by local conglomerate Hayley’s, which closed in October 2017.
Asia Securities is also advising stationary company Atlas Axilla on the sale of a 75.1% stake to diversified conglomerate Hemas Holdings in a deal valued at $37.09 million according to S&P Capital IQ.
But what really makes Asia Securities stand out is the quality of its research under the leadership of Kanishka Perera. This was reinforced when Sri Lanka’s local CFA chapter awarded Asia Securities first and second place for Best Equity Research Reports and it won Best Stock Broking Research Team.
The research team covers 60 stocks or about 70% of market capitalisation. Asia Securities says this enables it to offer breadth and depth of coverage including active stocks that other brokers have not yet touched such as Peoples’s Insurance.
The securities house says a second key factor behind its success is its willingness to selectively commit its own capital to facilitate client trades. Asia Securities’ lineage also means it has a slightly different business model than CT CLSA and now has a stronger retail bias.
As a result, retail investors account for 26.9% of commissions and institutions the remaining 73.1%. The ratio between foreign and local accounts is more balanced, with the former accounting for 58.2% of commissions and the latter 41.8%.
BEST FOREIGN BANK: HSBC
It is all change at HSBC. Under new leadership at global level, the bank has drawn a line under the retrenchment and controls, which dominated the thoughts and actions of the previous board.
The risk controls remain, but the focus is now very firmly on growth and HSBC’s new Sri Lankan management team are embracing the new strategy with fervour at a time when Belt and Road projects are picking up across the country.
Last year HSBC celebrated its 125th anniversary in the country. And officials were pleased they were able to mark it with 6% asset growth from $2.68 billion to $2.83 billion between the 2016 and 2017 financial years.
Ebitda also increased 2.56% from $80.79 million to $82.86 million over the same period.
Sri Lanka is one of the Asian countries where HSBC never scaled back its bricks and mortar retail business; it still has 14 branches. Its 4% to 5% market share gives it a much more visible presence than in Southeast Asia markets where its market share is more like 1% to 2%.
The bank has always been particularly strong in credit cards, targeting the premium end of the market. This dominance has steadily been chipped away over the years thanks to increasingly strong competition from domestic banks.
That led its market share (by receivables and spend) to decline from 27% in 2016 to 25% in 2017. However, the bank would like this figure to represent the bottom and officials say they are investing heavily to keep it from being eaten into further.
New initiatives in 2017 included Sri Lanka’s first ever Visa cash back card. In total, credit cards accounted for 19% of net income.
Foreign exchange represented another 19%, while commercial banking accounted for 46%.
The group has 1,247 corporate clients in Sri Lanka and sees future growth from facilitating Belt and Road flows. However, this does not necessarily mean providing loans for projects in competition with the Chinese banks, which are setting up locally but being a facilitator on the cash management and trade finance side.
Investment banking activity, overall, is still the dog that has yet to bark for anyone in Sri Lanka. But as usual HSBC found itself acting as a global co-ordinators for the sovereign’s two international bond offerings during the review period, a position it has found itself in for all of Sri Lanka’s G3 currency debt issues.
BEST FOREIGN INVESTMENT BANK: CREDIT SUISSE
This is the first time FinanceAsia has given out an award for best international investment bank in Sri Lanka, a country that has produced one sovereign G3 currency bond deal after another in recent years, but very little else of note in overseas financial markets.
This lack of activity stems from a number of factors, most notably a decades-long civil war, which ended in 2009. Since then, peacetime decisionmaking has been characterised by one government, which leaned almost exclusively on China for funding followed by the current coalition government, which has spent most of its time infighting rather than executing much-needed infrastructure projects.
During 2017, however, one striking deal from Credit Suisse underline how the bank’s successful and broad frontier markets franchise is being replicated across the region.
For in late spring it executed a $125 million structured syndicated secured financing facility for national flag carrier, SriLankan Airlines. The deal mirrored a structure it previously executed for Pakistan International Airlines (PIA).
The four-year deal was taken completely onto Credit Suisse’s books and was secured by the airlines’ ticket sales in Saudi Arabia, Kuwait and the United Arab Emirates; jurisdictions where SriLankan Airline has a long operating history.
Credit Suisse had security over both the collection accounts and the airline's dollar denominated debt service account. Both were monitored on a monthly basis, with the bank maintaining a 1.75 times coverage ratio.
But the main reason the deal stood out is because it solved a particular difficulty. SriLankan Airlines is one of the country’s most heavily indebted entities and has had to rely on sovereign guarantees or comfort letters to secure financing from domestic commercial banks in the past.
This deal got around that problem by grabbing some of the airlines’ most secure cash flows. The transaction was also a big help to the government when it was trying to reduce its debt and contingent liabilities under the guidance of the International Monetary Fund (IMF).
The deal was, therefore, not only innovative but also a win-win all round — for the government, for the airline, for the country’s domestic banks and not least to Credit Suisse, which would have pocketed far higher fees than on any plain vanilla deal in the country.
