Sri Lanka’s leading independent equity brokerage firm Asia Securities recently hosted its Inaugural Financial Sector Investment Conference. Titled “Shifting Gears: But Which Way?” the Asia Securities Financial Sector Investor Conference marked the 7th event under the “Wealth Insights” series of investor events which is now in its third year. This inaugural conference generated value-added insights for the capital markets community in Sri Lanka. Dr. Indrajit Coomaraswamy, the Governor of the Central Bank was the Keynote Speaker at the event. One of the key themes at the event was low capitalization constraining the growth potential of state banks and the urgent need for state banks to raise external capital in order remain competitive with private banks.
Commenting on the successful conclusion of the event, the Chairman of Asia Securities Dumith Fernando said: “We are pleased with the industry response to our inaugural Financial Sector Investor Conference. As one of the leading equity brokerage firm in the country, we feel it is our responsibility to be thought leaders for Sri Lanka’s capital markets community.”
He went on to add that, “This initiative by us provided the right platform for discussion, debate and resolution of the challenges facing the financial community while simultaneously examining the best investment opportunities in the sector. The presence of the Governor of the Central Bank and a diverse group of prominent speakers added to the richness of the discussions at the conference.”
During the event, Asia Securities’ Banking Sector Analyst and Head of Research, Kanishka Perera, concluded that the improved macroeconomic conditions have created a conducive environment for the Banking sector to deliver strong growth, but also pointed out challenges such as the implementation of IFRS 9 and the proposed transaction levy.
Lakshini Fernando, Asia Securities’ Non-Bank Financial Institution (NBFI) analyst and Economist, touched on the fact that NBFIs need to diversify in order to drive growth in a period which is seeing muted demand for financing consumption needs.
Several panel discussions were held at the conference. The first panel discussion titled “Looking ahead to 2018: Challenges and Opportunities for Banks” saw the Governor of the Central Bank of Sri Lanka, Dr. Indrajit Coomaraswamy, Mr. Jonathan Alles, CEO/MD – Hatton National Bank, Mr. Krishan Balendra, Chairman – Nations Trust Bank, and Mr. Ganaka Herath, Partner – Financial Institutions, at McKinsey & Co engaging in a vibrant discussion on the topic. A key message which came out of the panel discussion was that the macro environment is improving but, State Banks would need to raise at least LKR 50bn in order to stay in business with the higher capital requirements and double that in order to deliver meaningful growth.
The panel discussion titled “Financial Sector Valuations: Cheap or Challenged?” saw leading industry practitioners Ms. Niloo Jayatilake – Head of Investments, Softlogic; Mr. Kanishka Perera – Head of Research, Asia Securities; Mr. Asanka Rodrigo –Partner, Head of South Asia, Actis Private Equity; Mr. Sachin Wagle, Managing Director – Morgan Stanley, India engaging in a vibrant discussion on the topic. The panel highlighted that the valuations of banks has have fallen making them an attractive investment opportunity; There was consensus that Fintech poses an opportunity as well as a threat over the long-term, compelling Banks to proactively adapt to it to preserve value.
The session titled ‘State-Owned Banks in the Post-Basel III World’, featured Sachin Wagle, Managing Director – Morgan Stanley, India and Mr. Sujeewa Mudalige, Managing Partner/CEO – PwC, Sri Lanka. Sharing learnings from the Indian Financial Sector, Mr. Wagle said that majority of fund inflows have been directed towards the Banking sector when compared with others, but that low capitalization has been a constraint on the growth potential for state banks when compared with private banks and has led to market share losses. He went on to add that raising capital has allowed state owned banks to grow and has led to substantial levels of job creation especially in rural areas and has led to improved lending to SMEs.
Meanwhile, Mr. Mudalige spoke about the impact of Basel III implementation and upcoming IFRS 9 accounting standards on the Sri Lankan banking industry. In his opinion, the banking industry as a whole is largely unprepared for IFRS 9 requirements and will need to do a substantial amount of work heading into 2018.
A session on Fintech featured Mr. Ganaka Herath, Partner – Financial Institutions, at McKinsey & Co. who delivered a thought provoking presentation on the Fintech space. A panel discussion that followed featured Mr. Fariq Cader, Vice President – Digital Services, Dialog Axiata; Mr. Dinesh Fernandopulle, CEO, Synapsis; Mr. Ganaka Herath; and Mr. Thilak Piyadigama, Chief Operating Officer, Nation’s Trust Bank. There was consensus on the realization that banks will have to deal with Fintechs going forward and that technology will play a significant role in shaping the financial sector and all have to be ready for it