In an interview with Global CEO Magazine, Mr Russel Fonseka, the General Manager/Chief Executive Officer of Bank of Ceylon (BOC), discussed the bank’s strategies for “Banking Beyond Borders: Navigating Economic Growth and Stability.”

BOC, as the largest financial institution in Sri Lanka, plays a crucial role in supporting economic growth and stability by maintaining strong ties with various stakeholders, including the government, central bank, and international agencies.

The bank’s proactive response to the Central Bank’s monetary policy changes in 2023, such as significant interest rate reductions, facilitated affordable lending rates, stimulating economic activity, and reducing inflationary pressures. To navigate challenges and opportunities in the global economy, BOC strategically expands its international presence through overseas branches and correspondent banking relationships worldwide, ensuring resilience and sustainability amid external economic factors.

Leveraging digitalisation and technological advancements, BOC promotes financial inclusion and drives economic development by offering customers easy, safe, and reliable banking experiences through innovative digital solutions. Recognised for its digital innovation, BOC continues to lead the financial services industry with futuristic solutions, reaffirming its commitment to innovation and customer-centricity.

IN THE FACE OF A COMPLEX AND UNSTABLE ECONOMIC ENVIRONMENT, THE BANK’S FINANCIAL STABILITY AND STRENGTH SUPPORTED THE COUNTRY AS A WHOLE AND INCREASED RESISTANCE TO UNANTICIPATED OBSTACLES.

Q: How does your bank collaborate with the Central Bank and other financial institutions to support economic growth and stability within the country, and what initiatives have been particularly successful in driving this collaboration?

As the largest financial institution in the country, BOC recognises the significant role it plays for all stakeholders and society as a whole. Thus, upholding solid ties with all of our stakeholders including the Government, Institutions of Government, the Central Bank, other Financial Organisations, Customers, Employees, Suppliers, and etc. is of utmost importance to us.

The bank collaborates closely with international agencies, corporations, and institutions, enhancing its capacity to generate value. In return, these partners receive empowerment and support from the bank, enabling them to excel within their respective industries. The Bank of Ceylon recognises that the bank’s sustainable business model and strategy depend heavily on its business partners. Together, they effectively identify, manage, and reduce Environmental and Social (E&S) risks. The bank uses supplier assessments and audits as essential, open procedures to make sure that suppliers are adhering to its standards and specifications.

BOC diligently synchronised its operations with the Central Bank’s strategic changes in monetary policy in 2023, most notably the significant 550 basis point policy rate reduction. As a result of our proactive responses to these adjustments, we were able to adjust our lending and savings programmes and give our customers more affordable rates. This tactical shift increased the availability and affordability of credit for both individuals and enterprises, which stimulated economic activity in addition to reducing inflationary pressures.

In alignment with the government’s monetary policy, the Bank, as a market leader in remittances, facilitated crucial foreign currency inflows into the country and allocated them on a priority basis. Furthermore, the Bank contributes to the government’s revenue through tax payments, dividends, and investments in the government securities market.
In addressing pressing foreign exchange liquidity challenges, the bank implemented robust strategies to optimise foreign exchange reserves. By July 2023, through careful management and strategic initiatives such as import restrictions and promoting remittances inflows, we significantly contributed to stabilising the country’s foreign exchange situation. This effort alleviated liquidity pressures and supported the national economy during a critical period.

Additionally, BOC was essential to the government’s efforts to manage External Debt Restructuring (EDR) and Domestic Debt Optimisation (DDO). Our involvement with government debts necessitated a deliberate and proactive approach to restructuring, including investments in Sri Lanka Development Bonds (SLDBs), foreign currency loans to the government, and international sovereign bonds. We demonstrated our commitment to national economic strength by taking part in these initiatives, which sought to support budgetary stability and advance a sustainable economic environment.

In the face of a complex and unstable economic environment, the Bank’s financial stability and strength supported the country as a whole and increased resistance to unanticipated obstacles.

Q: In an increasingly interconnected global economy, how does your bank navigate challenges and opportunities arising from international markets and cross-border transactions, and what strategies do you employ to ensure resilience and sustainability in the face of external economic factors?

With the globalisation, as a country and as an organisation, it is essential to be connected both locally and globally. Whether we like it or not, we have to react to the changes happening in the global market. Every organisation must have strategies and actions to navigate challenges and opportunities arising in the global marketplace, and this applies equally to BOC. Being the largest institution of the country, we are well connected to global markets in different ways as we have our own business units, branches, more than 700 corresponding banking relationships with international banks and business partnerships with different global companies.

THE BANK’S OFFSHORE BANKING DIVISION WAS DEDICATED TO PROVIDING FINANCIAL SUPPORT AND ENABLING OUTWARD REMITTANCES IN FOREIGN CURRENCY TO EXPORTERS, THEREBY SUPPORTING EXPORTORIENTED INDUSTRIES AND BOOSTING EXPORT EARNINGS IN THE ECONOMY.

In its pursuit of creating greater value BOC has established an international presence through strategically placed overseas branches in key locations, such as London, UK; Male and Hulhumalé in the Maldives; Chennai, India; and the Seychelles. These branches are essential components of the biggest international network of foreign exchange and correspondent banks in Sri Lanka.

This means we are operating in a well-connected global economy where we continuously align our strategies to navigate the challenges and opportunities that lead to successful accomplishments in cross border boundaries. This would also bring international best practices to the local market by working with our international stakeholders and counter parties.

Further, BOC has introduced its International Customer Service Support Unit, known as ‘BOC Foreign Circle,’ with the objective of offering enhanced convenience to BOC customers residing and working overseas. This newly established unit will have representatives stationed in various regions, including Asia, Europe, the Middle East, and other countries, to facilitate swift and convenient access to services in Sri Lanka for our global clientele.

The Bank’s Offshore Banking Division was dedicated to providing financial support and enabling outward remittances in foreign currency to exporters, thereby supporting export-oriented industries and boosting export earnings in the economy, even in the face of obstacles like foreign currency liquidity issues in the previous year. The Bank was able to hold onto a sizeable portion of inward remittances throughout the year due to BOC’s strong relationships with foreign counterparties and exchange houses, even in the face of exchange rate volatility and the growth of informal markets.

Furthermore, the bank expanded its correspondent banking relationships to meet the national importance of inward remittances and trade finance. Initiatives such as BOC Pita Pita Rata Thegi were introduced to incentivise the utilisation of formal remittance channels and reaffirm the Bank’s reliability to its customers.

In addition to acting as a channel for investment and capital raising, the Treasury Division was essential in helping the Bank manage its daily cash flows and liquidity. The Bank’s profitability was greatly enhanced by taking advantage of trading opportunities and the Treasury Division’s prompt management of government securities.

Additionally, the Investment Banking Division, supported by a highly professional cadre, undertook fund management, portfolio management, and onboarded a number of new clients during the year.

The three overseas branches of BOC effectively handled non-performing assets (NPAs) within margins by means of ongoing customer engagement and proactive monitoring. These branches maintained their profitability and significantly increased the Bank’s overall profit over the previous year in spite of capital constraints and pressures from the global economy.

Leading the market, BOC has worked closely with global partners like the World Bank, Asian Development Bank (ADB), and International Monetary Fund (IMF). BOC, which has led the financial services industry for over eighty decades, is still utilising advanced global technologies to create value for all stakeholders and the country at large while also offering convenience and easier access to international markets.

Q: With the rapid advancement of digital technology and fintech innovations, how is your bank leveraging digitalisation and technological advancements to enhance banking services, improve financial inclusion, and contribute to economic development both locally and globally?

Our focus is to provide our loyal customers with the most pleasant and remarkable experience possible by incorporating the latest advancements in technology for their interaction. As the banking industry changes, BOC has been leading the way in embracing innovation and digital transformation. This dedication is motivated by the goals of promoting financial inclusion, increasing operational effectiveness, and improving customer experience. We’ve given consumers access to easy, safe, and reliable banking services by making investments in FinTech collaborations, mobile payment systems, and digital banking platforms. Our strategic emphasis on financial inclusion and digital transformation was stronger than ever in 2023. In response to our customers’ changing needs, we accelerated our digital banking initiatives and made significant improvements to our online and mobile banking platforms. As an illustration of this dedication, consider our ongoing efforts to enhance our online presence and provide safe and easy banking.

THIS DEDICATION IS MOTIVATED BY THE GOALS OF PROMOTING FINANCIAL INCLUSION, INCREASING OPERATIONAL EFFECTIVENESS, AND IMPROVING CUSTOMER EXPERIENCE.

Notably, we achieved a significant milestone when we launched BOC META banking, a banking feature for WhatsApp that provides users with simple access to transaction histories and balance inquiries for credit cards, loans, and bank accounts. We also relaunched the BOC Smart Passbook, introduced cardless withdrawal, and installed account opening kiosks in addition to launching BOC Bankpedia, a digital knowledge sharing platform.

Through pioneering a range of cutting-edge digital solutions, our aim is to transform the country’s financial services industry, staying ahead with futuristic solutions. Our efforts were recognised at the LankaPay Technovation Awards 2023, where we received three gold awards and two silver awards for our exceptional digital initiatives, reaffirming our commitment to innovation, customer-centricity, and leadership in the digital banking landscape.

Regarding financial inclusion, BOC has started a ground-breaking programme called BOC Connect, which connects rural and urban areas and brings the benefits of digitalisation to isolated communities. Rural residents can now easily perform daily banking transactions, such as cash deposits, withdrawals, fund transfers, and credit card and utility payments, through authorised agents. A handy one-stop payment option called gewamu.lk was also unveiled by Bank of Ceylon. This platform provides unmatched bill management convenience by allowing both customers and non-customers to effortlessly manage all of their bills in one location.

BOC has launched a concerted effort to align its IT governance procedures with the COBIT 2019 framework, with a focus on strengthening data security measures in response to evolving cyber threats, regulatory mandates, and customer demands for stringent privacy safeguards. Being the first bank in Sri Lanka to adopt this framework, we continue to be committed to optimising and improving our IT resources in order to improve our operational effectiveness. In addition to reaffirming our dedication to data security, this strategic alignment puts us in a strong position to prosper in an eco system that is defined by cutting-edge technologies like Blockchain, AI, Cloud Computing, Open Banking, and Big Data.

Q: What strategies does your bank employ for provisioning Stage III non-performing loans, and how does this contribute to maintaining financial stability and regulatory compliance?

Approaching with a broader perspective, prioritising the protection and nurturing of long-lasting loyal customer relationships, especially in an era marked by the imperative need for strategic adaptation to revive under performing and loss-making businesses, financial partners play a pivotal role in the business landscape. The economy of our nation faces significant challenges stemming from factors such as downgrades in country ratings, high inflation rates, and other variables. Banks are confronted with issues such as increasing costs, declining deposits and funding sources, and escalating working capital requirements.

The survival of any business entity hinges on its ability to generate bottom-line profits or at least maintain a break-even position. Recent economic conditions have compelled BOC to devise strategic approaches to support its valued corporate and retail customers in revitalising their businesses, benefiting both the bank and its clients. Traditionally, banks have often resorted to legal measures to recover bad loans, which can lead to the closure or downsizing of businesses and strain customer relationships.

Recognising the long-standing relationships between the bank and its customers, BOC established a Business Revival Division to assist struggling but viable customers during challenging times. The aim is to enhance revenue sources and amicably recover bank debts, thereby improving asset quality while safeguarding customer relationships. The establishment of this division reflects a proactive approach to address the unprecedented challenge of maintaining asset quality amidst rising non-performing assets (NPAs) across the industry.

The surge in NPAs is not solely attributable to borrower-specific reasons but is a consequence of post-pandemic and socio-economic crises. The solution lies in steering the economy towards recovery, which will facilitate the revival of industries, generate employment opportunities, and bolster social well-being. However, banks must take the lead in this process. BOC’s Business Revival & Rehabilitation Unit (BRRU), established in 2021, serves as a strategic link between the bank and its customers, offering customised financial solutions to potentially viable businesses.

The BRRU supports borrowers at the individual level, providing assistance for day-to-day activities, financial literacy, and working capital, regardless of their current performance status. By nurturing individual recovery, the unit aims to catalyze entity-level, industry-level, and ultimately, economy-wide revival. This novel concept in the banking industry underscores BOC’s commitment to strengthening asset quality and revitalising struggling businesses, contributing to broader economic resilience and growth.

Q: Sustainability and Environmental, Social, and Governance (ESG) considerations are becoming increasingly important in the banking sector. How does your bank integrate sustainability principles into its operations, investment decisions, and corporate strategy to promote long-term economic resilience and responsible banking practices?

In 2023, the bank intensified its dedication to incorporating Environmental, Social, and Governance (ESG) principles into its core operations, initiating a strategic endeavour to align business practices with global ESG standards.

Implementing an ESG framework into the business involves integrating ESG principles into the product offering process, similar to how it’s done for all other activities. This could include creating preferential covenants for customers and business partners who comply with ESG standards, thereby incentivising and promoting sustainability throughout the business ecosystem.

A pivotal milestone in this journey was the engagement of an external consultant, leveraging their specialised expertise to develop and refine our ESG strategy. This collaboration allowed us to draw from global best practices, ensuring a comprehensive approach in line with international standards.

The ESG consultant played a crucial role in identifying areas for enhancement, setting measurable objectives, and crafting strategies to embed ESG considerations across all levels of our operations. Another significant advancement was the establishment of the Environmental and Social Management System (ESMS) unit within the bank. Tasked with scrutinising our loan and investment portfolios from an ESG standpoint, this unit ensures that our financial activities promote environmental sustainability and social welfare.

The ESMS unit became integral to our decision-making processes, evaluating potential environmental and social risks associated with our banking activities and advising on mitigation strategies. This rigorous approach not only enhanced compliance with regulatory requirements but also positioned us as a leader in responsible banking.

To further strengthen our ESG framework, we engaged an ESG consultant over a three-year period to review our policies, conduct a gap analysis, and develop a sustainability roadmap. Our operations are aligned with the Central Bank’s sustainability roadmap and the United Nations Sustainable Development goals.

By adopting a holistic approach to ESG practices, we aim to generate positive outcomes for our stakeholders and society as a whole. Amid challenging times, our commitment to supporting our team remains steadfast, prioritising open communication, professional development, work-life balance, recognition, diversity, and inclusion.

As part of Bank of Ceylon’s sustainable financing initiative, the Bank actively participates in green financing, which includes engaging in refinancing initiatives as a participatory financial institution. Additionally, the Bank upholds its long-term commitment to reducing the environmental footprint of its operations by implementing sustainable practices such as adopting solar energy in branches and increasing the utilisation of renewable energy sources.

With a focus on supporting the recovery of the economy, BOC’s dedication to responsible banking and its ongoing commitment to energy sustainability not only contribute to macroeconomic stability but also support national development initiatives.

Our BOC Gammana programme, aimed at empowering rural areas, continued in 2023, underscoring our commitment to corporate social responsibility. Additionally, we took concrete steps to reduce our carbon footprint, conserve natural resources, and protect the environment. We expanded green lending and introduced sustainable deposit schemes like Haritha Kekulu and E-thuru, encouraging environmental consciousness nationwide.

Our efforts to drive environmental change were recognised with the 2023 Green Business Leadership Award and the 2023 Green Commitment Excellence of the Year award by the Green Building Council. These accolades reinforce our dedication to environmental custodianship and sustainable banking practices.

Q: As a leader in the banking industry, what role do you see your bank playing in driving innovation, fostering entrepreneurship, and supporting Small and Medium -sized Enterprises (SMEs) to stimulate economic growth and create employment opportunities within the country and beyond borders?

By putting in place a number of policies targeted at helping clients affected by the crisis and promoting business sustainability, the Bank has been instrumental in spearheading the nation’s economic recovery. In times of tight foreign exchange liquidity, the Bank opened Letters of Credit (LCs) to enable the import of necessities like coal, LP Gas, petroleum, medicines, and medical supplies. This helped struggling companies continue to receive services.

Moreover, the Bank has supported essential government services by bridging liquidity shortfalls in key state-owned organisations and facilitating crucial payments such as salaries, pensions, and other expenses. Notably, the Bank’s efforts to promote financial inclusion through targeted development lending to entrepreneurial ventures and Micro, Small, and Medium Enterprises (MSMEs) have been commendable.

In its capacity as a Participatory Financial Institute (PFI) for a number of concessionary funding lines, the Bank has helped vulnerable populations, supported sectors hit by the crisis, and encouraged the island’s adoption of green businesses and technologies. Furthermore, the Bank has concentrated on enhancing female entrepreneurs’ and women-led businesses’ access to financing so they can expand and diversify their sources of income.

BOC Export Circle, SME Circle, and Foreign Circle are examples of innovative business concepts that have been introduced to support innovators, startups, and businesses that are focused on exports. While the SME Circle concentrates on offering information, advisory services, and credit access for SMEs, the Export Circle provides networking opportunities, capacity building, and financial support to businesses focused on exports. To expedite the loan application process, the Bank has introduced specialised web portals and mobile applications.

With a commitment to enhancing the competitiveness of Sri Lankan SMEs on the global stage, BOC launched the “Entrust SMEs to Global” programme in collaboration with the Industrial Development Board. This initiative aims to empower entrepreneurs by equipping them with essential resources to expand their businesses and contribute to the country’s economy through global market access. The programme offers crucial materials, including marketing and branding strategies tailored for reaching global markets, as well as insights into potential opportunities and risks associated with MSMEs. Through this programme, BOC seeks to support SMEs in seizing international opportunities and navigating challenges effectively.

The Bank is dedicated to empowering women and young entrepreneurs, which is why it has started programmes like BOC energizer, which offers creative SME financing options. The Bank continues to emphasise its “thin margins, high volumes” strategy and introduces new concessional MSME financing programmes in spite of macroeconomic difficulties. BOC continues to lead initiatives aimed at bolstering the rural economy and propelling the country’s economic expansion.

Q: Over the last few years, what key initiatives has your bank implemented to enhance its performance and competitiveness in the global market? Looking ahead, what are your expectations for your bank’s performance and growth in the coming years, particularly in the context of expanding operations beyond borders?

In order to support industries, sectors, and the Sri Lankan economy, BOC, as the largest financial institution in the nation, actively participates in promoting industry associations and partnerships. It looks for chances for cooperation and partnership with reputable organisations. In addition to supporting the growth of the financial services industry, BOC is dedicated to maximising the beneficial effects of businesses and organisations that share these objectives.

The Bank collaborates with numerous international partners, maintaining correspondent relationships with international banks and financial institutions, as well as fostering close collaboration with exchange houses. These relationships are instrumental in enabling Bank of Ceylon to establish connectivity across overseas locations, facilitating various operations including remittance, overseas, and offshore operations. Through these partnerships, the Bank enhances its global reach and ensures efficient operations on an international scale.

Throughout the year, our processes and business strategy were tested and shown to be essential for surviving the difficult economic environment. Digitalisation of the bank’s services, systems, processes, and customer journey has been given top priority as part of BOC’s transformational strategy in order to guarantee future-proofing through improved digital capabilities. We are further strengthened by the bank’s strict procedures and systems, which follow the guidelines expected of a State Bank while preserving the autonomy and adaptability required to prosper in a fast-paced commercial climate. This process streamlining has resulted to exceptional customer service, highlighting our dedication to boosting productivity and efficiency for the bank.

By establishing and running the Business Revival and Rehabilitation Unit (BRRU), the bank made notable progress in 2023 toward resolving the socio-economic issues confronting our country. This programme was the result of realising how important it was to assist companies that were having difficulty recovering from the pandemic and increased financial strain. By using management overlays to identify industries at elevated risk and re-valuating exposures to high-risk borrowers, the bank adopted a proactive approach to risk management. Due to business revival efforts, strict credit monitoring, and currency appreciation, this resulted in a net reversal of impairment provisions during the period.

Additionally, the bank embraced technological transformation by implementing digital solutions to streamline operations and enhance customer experience through digital banking solutions like mobile apps, online banking platforms, and internet banking.
The bank has also directed its efforts towards exploring new market segments both domestically and internationally. Leveraging its extensive network of global partners and a diverse product portfolio, the bank aims to cater to the evolving needs of a rapidly changing economy. By doing so, the bank not only delivers exceptional value to its customers but also strengthens its position in the market.

The bank’s commitment to facilitating financial inclusion for individuals residing in economically disadvantaged areas, as well as those engaged in informal financial markets, is further demonstrated through its involvement in the “Aswasuma” government programme. Through initiatives like these, the bank’s socio-economic impact is magnified, as it aids in supporting stressed supply chains, generating and maintaining meaningful employment opportunities, fostering entrepreneurship, and fostering both rural and industrial development across the country.

In its pursuit of increased efficiencies, the bank has embraced technology, including biometric transformation, to enhance the customer experience. Additionally, the bank has implemented deception technology at its overseas branch in Chennai. These technological advancements not only streamline operations but also contribute to improved security measures, ultimately ensuring a better overall banking experience for customers.

Our tenacity and contributions to the Sri Lankan economy brought us both international and domestic acclaim in 2023, when we were ranked in the top 1000 banks globally and won the UK’s ‘The Banker Magazine’s Bank of the Year 2023′ award. Furthermore, Brand Finance Lanka has recognised us as the top banking brand in Sri Lanka for the fifteenth year running.

With 2024 as our target, the bank is ready to take the next step in developing into a technologically advanced organisation. Our vision calls for a thorough approach to digital transformation that prioritises improving customer interaction. We understand that using the most recent advancements in digital technology to give our clients a smooth, simple, and customised banking experience is the way that banking will develop in the future.

Our goal is to improve banking so that it is more easily available, practical, and safe for everyone, everywhere, at any time. This entails growing our digital offerings, improving our mobile and web platforms, and launching cutting-edge digital goods that meet our clients’ changing needs both locally and globally. Using process automation technologies across our operational spectrum is a major component of our 2024 strategy.

We will also give improving staff training and development initiatives a lot of attention. Our objective is to provide our staff with the abilities and information needed to prosper in the quickly changing world of digital banking. Our goal is to foster an innovative and ever-learning culture by investing in our people.