Consolidation bounces back
Top banker sees need for banking sector consolidation to achieve economies of scale
Even before t he dust gets settled on the regulator-forced banking sector consolidation programme which has now been set aside, a veteran banker in the country sees the need for the sector to consolidate through mergers and acquisitions in order to achieve economies of scale.
According to the NDB Bank PLC CEO, Rajendra Theagarajah, the sector is over-crowded and needs shrinking. However he is of the view that leaving the process entirely to the private sector does not help the course.
“I think we should (shrink),” he said responding to a question on whether the banking sector needs consolidation.
“I have gone through this journey for the last two to three years and I have not given it up. The issue is that leaving it entirely to the private sector to drive it and leaving it to the democratic process doesn’t work,” he said at an event organized by the research arm of the stock brokerage, Asia Securities (Private) Limited to launch their banking sector report.
It is in the grapevine that NDB is in talks to buy a controlling stake in another major commercial bank.
The report titled, ‘Banks: An evolving story of elephants and cheetahs,’ Asia Securities said Seylan Bank PLC could become a takeover target for either NDB Bank PLC or DFCC Bank PLC.
“Strong branch network, high Current And Savings Account (CASA), strong presence in SME and retail banking and exposure t o credit card business has led the bank to be a prime takeover and merger target for growing banks like NDB and DFCC,” the report stated.
In March this year, NDB Bank PLC bought 8.5 percent stake in Seylan Bank PLC which many believed strategic. As of March 31, 2015 NDB Bank PLC had an 8.72 percent stake in Seylan, being the fifth largest shareholder.
Theagarajah believes that an “occasional nudge” needed to stimulate the process because the frontier markets might not have seen banking sector consolidation before.
“When it comes to an emerging, frontier economy, they are seeing the consolidation (banking sector) for the first time. An occasional nudge is needed, at least to give a jump start (to the process)”, he said.
Currently there are 25 licensed commercial banks, including 12 foreign banks and 9 licensed specialized banks operating 6,554 branches and other outlets in Sri Lanka. The bank density – the measure of number of bank branches per 100,000 persons – has increased to 17 by end 2014, 16.8 a year ago.
In view of the immediate requirement to increase the minimum core capital base up to Rs.10 billion from the current Rs.5 billion, Asia Securities is also of the view that Pan Asia Banking Corporation PLC too will see a possible merger in the short term or at least a new capital infusion from a foreign investor.
Japan-based Bansei Securities Co., Ltd already has 15 percent stake in the bank.