Banking for the future of Sri Lanka

Interview with Thimal Perera – Deputy CEO, DFCC Bank

Our Senior Business Development Manager, Joe Bowerbank, caught up with Thimal Perera, Deputy CEO of DFCC Bank. Thimal provided a number of interesting insights into how DFCC is strategically dealing with the challenges of operating in 2020 and building a roadmap to continue delivering a first-class banking experience going forward. Thimal has worked in both local and international banks across the globe, looking after a number of different areas from SME and retail, to digital transformation amongst others. This interview focuses on digitalization and credit risk – two areas that have been hot topics for Creditinfo’s clients this year.

New digital solutions for consumers are always driven by the new technologies which a bank adopts. Could you share some insight on how DFCC are adopting new technologies to power your new customer solutions?

Digital for DFCC Bank is a big part of our future strategy. We put the customer at the heart of everything we do and our overarching ambition for DFCC is to be the most customer centric and digitally enabled bank in Sri Lanka by the year 2025. Digital plays a big part in everything we do today and all of our strategies going forward.

We are currently investing a lot of money in upgrading our systems. We are putting in a new core banking system which will go live in the beginning of 2021. The digital capabilities of the new core banking system was the main reason that DFCC Bank picked the solution provided by Temenos. DFCC is not a bank which does digital just for the sake of doing digital.

Digitalization for us is not just the front-end customer interface it’s also the back-end system. We want to digitalize our in-house processes as well, so that we deliver a service to the customer that is in keeping with their needs and expectations. We already use Robotic processes (RPA) in our back offices. We also extensively use Google Enterprise to streamline and automate our processes. Blockchain is currently being evaluated. We extensively use BI and Big Data. We also use scorecards developed using statistical decisioning models in our credit under writing processes.

Digitalization is deployed to enable the customer to deal with the bank at their convenience and through a device of his or her choice. Essentially, we are enhancing the ease of use and flexibility which results in convenience for our customers when dealing with the bank.

If we look at Digital in terms of utilization from the customer, historically Sri Lanka has been a society where cash has been king. Do you foresee this changing in the near future?

Very interesting question. Actually, the digital adoption in Sri Lanka has been pretty slow. I have had many years working in the middle east as well. Although the digital capabilities here are far ahead of what I had previously experienced in other countries, their adoption levels were pretty low. Cash was still king. If somebody wanted to go to the supermarket, they would first go to the ATM outside and take the cash out, but we have seen a step change in customer behaviour in the last 5-6 months precipitated by the pandemic.

The adoption of digital capabilities and products has gone through the roof. Not just people coming and registering for online and digital channels, but also the usage of these channels including our online banking, bill payments, the DFCC Pay and the DFCC virtual wallet. Previously we always had high registrations numbers, but adoption and usage was low. This has completely changed, and I see that trend continuing as people do realize the value of being able to deal with the bank remotely and they understand they do not necessarily have to come into a branch to do their banking. I think this will continue and adoption will go from strength to strength.

This is essentially what DFCC Bank would like as well. We would like customers to come into the bank if they want to discuss their banking needs or take a new product, but not for day to day transactions. We will provide the means and channels to facilitate day-to-day banking through alternate digital channels but be flexible to accommodate any client who prefers to walk into any of our 140 branches.

In terms of these new digital channels, particularly mobile wallets for example, Creditinfo have done a lot of work in different countries scoring and utilizing this data to facilitate the line of credit and to support financial inclusion. Is the use of alternative data, such as mobile wallet data something that DFCC Bank may look at in the future?

DFCC was the very first bank in Sri Lanka to deliver a proper wallet. Some of the solutions that are provided to consumers are not a full wallet, but a “dressed-up” bank account. The DFCC wallet offers a full wallet solution on the phone, where funds are required to be transferred from bank account or credit card and then can be used as a fully functioning digital wallet.

At the moment it is essentially offered to our existing customers who are looking for an alternative to the traditional bank account and payment card.  However, the overarching strategy is very much financial inclusion, to target the unbanked and underbanked population. People who do not necessarily have access to bank branches. We want to take the wallet out there and get people using it. Our strategy going forward is to be able to reach a much wider target audience in order to get them to bank with DFCC.

This as you say is also a rich data source. We will use BI and Big Data to maintain relevance and fine tune our offering to the wallet customers, and indeed to cross sell other banking products through the use of credit scoring models.

If we move to focus on credit risk, obviously we’ve had a huge impact this year with the COVID pandemic. One of the support measures which the central bank of Sri Lanka brought in was the loan moratorium for specific individuals and companies who were particularly impacted by the pandemic. The moratorium is coming to an end shortly. Do you foresee that this will have an impact on Non-Performing Loan (NPL) rates you are currently experiencing?

The moratorium for most segments is coming to an end, having said that, for the longer term impacted industries such as tourism and travel, the central bank has extended the moratorium period up until March 2021. We do however foresee some businesses not being able to recover at the scheduled end of the moratorium.

There were two things that the central bank did one was the moratorium schemes the other was the subsidized rate of working capital facilities which were priced at 4% and repayable over 2 years. DFCC did all this plus for the customers who were not necessarily eligible for the central bank relief scheme we also granted our own moratoriums and grace periods, working capital finance etc. so there were thousands of customers we helped during this period. Interestingly we also used our digital capabilities to help them, as it obviously wasn’t possible to do all this manually. We brought in robotics and automation into this process of granting moratoriums rather than doing it manually and that helped us handle the large volumes with ease.

To answer the question, I think there can be an uptick in NPL’s going forward, but we are being very proactive. We are looking at the customers who are currently under moratorium and evaluating them to understand whether they need further moratorium or further assistance. We are talking to them individually and working with them on plans to support them where it is needed. Where we feel the business is at a stage where the recovery is very unlikely, we are also building in provisions so that we don’t face any surprises at the end of the moratoriums.

DFCC is known to been engaged with SME businesses which are a core segment of the Sri Lankan economy. This is a challenging area to work in due to the significant difference between SMEs and corporates in terms of structure, regulation, data etc. How does DFCC Bank continue to support SMEs and the facilitation of credit to this sector given the challenges involved? 

At DFCC we are celebrating 65 years in existence this month. Of that 65 years for up to 2015, almost 60 years, we were a development bank. Some of the large corporates that you see in the market today were SMEs that started and grew with us, then transitioned into the large corporate space. So traditionally we’ve been working with SMEs and we are a bank which helps not only SMEs, but also large corporates and government infrastructure projects, renewable energy projects, Tea and other agricultural industries etc. We have helped a lot of businesses and customers to achieve the pinnacle of success throughout our lifespan of over 65 years in this country.

SME is a key area, and we understand that SMEs will and is playing a key role in the future of Sri Lanka in terms of the development of our GDP and future growth of the country. We always nurture and foster SMEs. It is a difficult process when it comes to evaluating SMEs because the governance is not as smooth as the large corporates. They do not necessarily maintain proper books or accounts, they don’t have the same auditory requirements, so in terms of credit risk it becomes quite difficult to evaluate facilities.

What DFCC Bank does is that we do not just look at what is on paper. We visit the clients, get a full understanding of the requirements, view their business and even go to the extent of going through their cash books and so on, looking at their invoices and bills to create their financial framework and do an evaluation based on what we put up for that customer where the audited financials are not available. We have that experience, and we have that skill set, which is really what separates DFCC from a lot of other banks, as we have been working with that segment for a long time. We understand the needs of the SME client and are also in a position to advise them where necessary.

We also collaborate with various bodies such as the Institute of Chartered Accountants to up-skill and train SMEs on good governance and business skills. These are mainly aimed at the business owners. At DFCC Bank while we are a fully-fledged commercial bank, SME is and will remain a key part of our focus and DNA.

Thimal Perera, Deputy CEO of DFCC Bank

Joe Bowerbank, Senior Business Development Manager, Creditinfo Group