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People’s Bank, which has now become a case study for how a state owned venture could be turned around with effective management, is bracing for its second wave of growth under a new corporate plan.
The Bank has seen tremendous progress in its business in addition significant improvements internally under the current Development Plan of 2004 to 2008.

Encouraged by the achievements to date, the Bank is busy formulating the next five year plan from 2009 to 2014.

“With the next plan in motion, People’s Bank whilst being state owned will become truly world class in all aspects,” General Manager and CEO Asoka de Silva told The Bottom Line.

Given the success achieved in the 2004-08 plan, such a vision is realizable by the Bank while the CEO said that progress thus far has certainly been an encouragement to everyone to aspire greater excellence.

Through the current plan, the Bank has successfully transformed its outlook following reposition of its image. It has also achieved Key Performance Indicators (KPIs) and most other financial targets including profit, profit per employee, recapitalization, deposits, loans and advances, assets, NPL ratio and volume.

In fact Fitch ratings noted in its latest rating affirmation (A-) that People’s Bank financial profile had improved commendably.

For example, the Bank’s income had grown from Rs. 23.1 billion in 2003 to Rs. 35 billion in 2006 while operating income grew from Rs. 13 billion to Rs. 19.5 billion last year. Operating profit amounted to Rs. 4 billion from Rs. 1.5 billion in 2003 while profit after taxation was Rs. 3.1 billion, as opposed to Rs. 1.5 billion in 2003.

Balance sheet wise, assets have grown from Rs. 220 billion to Rs. 339 billion while liabilities amounted to Rs. 328 billion. A key achievement is reserves which were negative Rs. 1.2 billion in 2003, was converted a positive figure of Rs. 10.4 billion last year.

Deposits (through innovative accounts such as Jana Jaya, Vanitha Vasana, Sisu Udana, YES), had increased from Rs. 115 billion to Rs. 270 billion while loans and advances have swelled from Rs. 102 billion to Rs. 223 billion. Total Non Performing Advances, (which is a bad legacy inherited by the Bank), in 2001 amounted to Rs,. 25 billion, but since then has come down to Rs. 16 billion in 2006.

“Non-performing Loans ratio has come down. Special Assets Unit with professional recovery team is on the job. New loans are given with consideration to creditworthiness, financial strength through streamlined system. Since 2001 only 3% of loans have gone bad, which is the general commercial banking rate,” Mr. de Silva said.

Among some of the financial indicators are cost income ratio was 73.8% in 2006 compared with 96% while profit per employee saw a turnaround from a negative figure of 0.11 to a positive 0.33.

The Bank recently got a boost when the Treasury agreed to infuse fresh capital as per its undertaking in tandem with improvement in its core performance.

As per the original capital infusion plan of Rs. 6.5 billion, so far Rs. 3 billion had been received. The third tranche of Rs. 2 billion due in 2007 is to be infused in two equal instalments in October 2007 and December 2007, with the final tranche of LKR1.5bn expected to be infused in FY08.
The restructuring that was kicked off from 2000 has also enabled the establishment of a new business culture at the People’s Bank with business process re-engineering, customer centre services, empowering and developing managers, introduction of IT, rejuvenating HR functions with accelerated promotions, training etc.

“All these have been achieved with the support of the entire staff and with industrial peace and harmony,” Mr. de Silva recalled.

“People’s Bank’s success todate is a test case for any large public sector institution. We have shown that despite being state owned an inspite of highly competitive environment with aggressive private and foreign banks, People’s Bank can play a pivotal role with profitability,” emphasised Mr. de Silva, who has given effective leadership to the restructuring process as well follow up progress.

The Bank has the biggest customer base (over 10 million) and the widest reach in the country with 324 branches, 306 service centres and 140 ATMs as of March 2007.

Mr. de Silva said that future focus would be to improve the effectiveness of branches and better serve customers, revamping the functions through performance management system, succession planning, performance based reward system as well as training and capacity building to fill skill gaps to provide more effective and efficient services.
Expansion of the bank business and services with further improved new technology to provide easy access and speedy services is also on the cards. Given its development mandate, the People’s Bank will also intensify focus and solutions to SMEs and micro financing clients.

Success in 2006 as well as thus far in 2007, has been met despite challenging market conditions. “Market environment has been tough but we have been balancing between high interest rates, credit quality and profitability, inflationary pressures, pension fund contribution,” Mr. de Silva said. Despite aggressive competition, the Bank has achieved healthy growth in deposit mobilization, pawning business and also supporting government initiated financing programs.

Heavy taxation and pressure on pension financing as well as high interest rate environment have necessitated greater cost management at the Bank said Mr. de Silva commenting on some of the immediate challenges. The Bank is also keen to further enhance the quality of its lending portfolio without compromising the focus on expanding corporate and international banking growth and diversification.