Ajay Kanwal, Regional CEO, ASEAN and South Asia, Standard Chartered: Interview

Interview: Ajay Kanwal

What do you see as the distinguishing characteristics of the banking landscape in South Asia?

AJAY KANWAL: Sentiment in South Asia continues to be very positive as GDP growth, credit expansion, consumer confidence and public infrastructure spending increases across the region. In its role as a financial intermediary, banks have played a pivotal role in enabling this growth. Several themes are at play, the most prominent being financial inclusion that extends to the mass unbanked population, government-led economic stimulus, infrastructure spending, measures to attract investments from developed markets, and policies toward corporate deleveraging.

Banks have also been playing a significant role in raising financial awareness and literacy, providing cheaper and accessible credit, and embracing digital banking to enhance banking penetration and experience. Concepts such as microfinacing, mobile phone banking and rural credit initiatives have been widely accepted as they become more accessible and convenient. In addition, banks have been a catalyst in facilitating the flow of funds across borders and supporting the corporate-led growth in the region.

Another distinguishing characteristic of the region is the rise of the middle-income group and its growing appetite for new and more financial services. This development has provided banks in South Asia with an opportunity to customise products and services, from wealth management and insurance to online shopping and payments, to cater to the region’s rising middle-income consumers. As slowing global growth crimps South Asian exports, the region will increasingly turn to domestic consumers to drive growth.

Financial access in Sri Lanka is one of the highest among South Asian countries. Given the positive outlook for economic growth in Sri Lanka, comparatively lower real interest rates in the economy and the government’s push for financial inclusion, demand for credit is likely to stay strong. The formulation and execution of sound economic policies and the implementation of good governance bode well for a country struggling to shake off its post-war hangover.

What role do foreign banks primarily play in supporting Asian markets?

KANWAL: Foreign banks, including Standard Chartered, have been present in many Asian markets, including Sri Lanka, for over 150 years, playing a vital role in the region’s economy. International and intra-regional trade has been the primary driver of foreign bank activity in Asia. Specifically in Sri Lanka, as the country pursues a strategy to position itself as a regional trading hub for South Asia, the role of foreign banks will be important to transition the country’s trade business to the next level. International banks also facilitate much-needed investment to the country, enabling international corporates to participate in the growing infrastructure and construction space. Foreign banks work closely with international donor and development financing organisations, supporting areas from infrastructure development to microfinance, and making the financial system more accessible to the rural masses of the country.

How do you expect external pressures to affect banking activity in the region in 2016?

KANWAL: External pressures are driving an overall slowdown in the economic environment. Investment sentiment has been affected by depressed commodity prices and weak external demand. Inevitably these factors could affect demand for loans, and concerns over credit risk may also curtail lending appetite. Interest rate hikes help to improve banks’ margins, assuming such increases are commensurate with stronger economic activity. However, one also has to determine funding sources. Higher interest rates will mean higher financing costs and margins may narrow if the funds are deployed in assets with falling yields.