50 Most Powerful Women – #1 Renuka Fernando

NTB’s Renuka on refocusing to keep abreast with the industry

By Echelon.

Published on December 16, 2014 with No Comments



CHIEF EXECUTIVE, Nations Trust Bank

After some soul searching NTB decided,some years ago, to shed its elite image and enter some high yield market segments. It’s been remarkably successful with that strategy so far. However it faced some challenges in the past two years.




“We’re well positioned even though we’re not a mass bank,” NTB Chief Executive Renuka Fernando says.In 2013 NTB had a Net Interest Spread (NIS) of 5.9%, which is about two percent higher than what most big banks managed to achieve. Stock Brokerage CT CLA forecast NTB’s NIM’s to rise to 6.2% in 2014 and to 6.4% in 2015. While most banks see interest margins under pressure NTB may buck the trend. Higher than industry margins were supported by its large leasing portfolio, which has fixed rates, and its SME and consumer lending; which are high margin businesses.

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“We have a good portion of our book in high-yield loans. But the real saviour will be building scale,” Fernando explains the challenge. “Below that line, we have to make a real impact about our costs. That is imperative. It has to be about how we get the efficiencies and the productivity. This has to be the strategic thrust.” It’s in its scale ambition that NTB – like the rest of the industry – has been challenged in the last two years.

Lower than anticipated credit demand has disappointed the banking sector in the last two years. In 2013 industry wide credit grew at 8.8% and 12% at NTB. Better than industry growth was however far below its budgeted 34% growth for 2013. This is NTB’s and Renuka’s first challenge, delivering credit growth. “Now we want to push the volumes, push the revenues up,” she says, “and make those branches very productive.”

Significantly below budget credit growth, at around a third of the budgeted increase in NTB’s case, can challenge a bank. Firstly it will have to figure what to do with all the excess cash. No banker will be satisfied with investing the excess cash in government debt, because that’s not banking and isn’t a viable route to build a sustainable business. However, without any other options,banks have had to do just that and Renuka Fernando points out that NTB had “some gains on mark-to-market and that’s not too bad.”

It will also have to deal with the idled infrastructure. If not loan officers may well end up being unproductive. The bank rolled out a large branch network – now 90 – to tap lower cost deposits and reach businesses that it wants to lend to in the provinces. This is the second challenge for NTB and its leadership. It’s two years into implementing a five-year plan that aimed to have a 140-branch network.

NTB saw credit momentum gathering in the September quarter 2014, when it expanded 19% year-on-year. “We want to see revenue growth of 30-35%. So our ambitions haven’t been realised.” Because topline growth didn’t keep pace with expansion NTB is now reevaluating the five-year plan. Renuka Fernando thinks it may require some tweaking.

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The investment in a branch network that trebled in size in the last eight years to 90 – drove up costs. Costs are higher than NTB would like it to be. The cost to income ratio however is declining, slowly. In the nine months to September 2014 it fell to 52% from 55% for the same period the previous year. Renuka expects this to decrease to around 47% in the next couple of years, but would like to see the ratio at 40% eventually. For the bank’s strategy to work it needs a branch network.“Consumer is costlier than corporate to maintain,” says Fernando about the strategy, “we’re getting a good return, but we have to make sure that return is exponentially more than cost. That’s why for us cost management is so important.” Last year the bank reworked their processes to be leaner and more efficient with the assistance of consultants.

Because of declining interest rates the advantages of a low cost deposit base are also declining. Bank savings account interest rates are 3% to 4% while Fixed Deposits (excluded from the low cost deposit mix) earn around 6% interest. A year ago fixed deposit interest rates were 11% or so. Renuka Fernando identifies three advantages to having a high percentage of deposits in current and savings accounts (also called low cost deposits) although the advantages of the first reason – the cost – is somewhat diminished. The second reason is the close relationship the bank is able to establish with a client, “you’re capturing a client’s financial heart,” Renuka explains because all a client’s financial dealings will involve the bank. Thirdly the ‘core (deposit base) then will remain very stable,” she explains. “From a liquidity sense these deposits are very important because they are very stable funds”.

Growing, at budgeted levels and faster than the industry and cost management are the two challenges that are likely to occupy most NTB management bandwidth. The other two challenges are maintaining their competitive edge in the segments they compete in and the industry-wide impact of financial sector consolidation.

“Everything in banking is cyclical. As long as you have a diversified product mix you can withstand those cycles to some extent,” says Renuka Fernando who was appointed Chief Executive in 2012. For a small bank NTB has a diversified portfolio with a little over a quarter of the lending to leasing, 20% plus to SMEs’, consumer lending including credit cards at 18% of the book and, 30% to the corporate sector.

“Our strength is a certain segment of the market, which is also a growing segment. If the country continues on the growth trajectory we’re all talking about, it will result in increasing disposable incomes, that means the middle income and the emerging mass is going to rise fast. We’re in that space. It means SMEs have to be the backbone of industry. We’re in that space too. It means the mid-sized companies will also grow and since we’re strong on trade finance we can work with them. So we’re well positioned.”

Right now Fernando isn’t too apprehensive about the potential industry disruption of financial sector consolidation. “Just because banks are consolidated into huge banks doesn’t mean there isn’t a need for banks like ours,” she says.“We’re needed because of our focus on certain segments.” When rates decline it increases peoples’ disposable incomes, growing consumer demand. Renuka Fernando says the bank is well positioned to take advantage of these lifestyle shifts.


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