MICROCAPITAL STORY: Sri Lankan Bank of Ceylon to Open More Branches Focused on Small and Medium Enterprises and Microfinance

The chairman of the Bank of Ceylon (BoC), Dr Gamini Wickramasinghe, has told the Sri Lanka Daily News that the bank would be opening several more branches in the Northern and Eastern Provinces of the country soon, saying that with the war coming to an end there will be a huge demand for banking services in these areas. According to Dr. Wickramasinghe, the Sri Lankan government expects more foreign exchange to flow into the country to develop the devastated provinces, especially from the Sri Lankan disaspora. The openings will include more branches in each province to provide microfinance services, as well as nine ATMs in the North, seven ATMs in the East, and 11 mobile units. Dr. Wickramasinghe said there are currently 25 branches in the North and that by year-end there will be 31 branches in the East, focusing on small and medium enterprises.

The chairman said that the grassroots savings groups the bank has set up across its network will provide a platform to serve the microfinance sector. Currently the BoC has 5,000 savings groups serving 30,000 members. The bank provides small farmer credit, livestock credit linked to insurance, micro enterprise credit, Inland Marine fisheries credit, and assistance for milk production. Plans are under way to open 10 more branches in each province to provide these microfinance services.

The bank recently recruited 200 graduate management trainees and 500 banking assistants to fill vacancies in branch offices island-wide. Some of these recruits are Tamil-speaking who will work in the Northern and Eastern Provinces.

According to a 2005 Country-Level Effectiveness and Accountability Review (CLEAR) by the Consultative Group to Assist the Poor (CGAP), Sri Lanka’s microfinance sector faces both opportunities and challenges going forward. Despite achievements in social development, poverty reduction has been relatively slow. An ongoing conflict between the government and the Tamil Tigers since 1983, and the tsunami of 2004 are both partly responsible. Although some significant financial sector reforms have been implemented, there remain several weak public financial institutions.

According to CGAP as of 2004 out of a population of 20 million people, Sri Lankan microfinance institutions provided 2 million outstanding microloans and 15 million deposit accounts. Weaknesses include substandard portfolio management and financial sustainability, a poor level of microfinance specialization, and widespread public-sector involvement in credit delivery (the government of Sri Lanka is the major provider of financial services to the poor through its social welfare organizations). Many microfinance providers are not committed to transparency. Of the sixteen Sri Lankan MFIs listed on the MIX Market, not one of them has a five-diamond rating for disclosure (ratings range from one to five with five being the best), and only four have a four-diamond rating.

The Bank of Ceylon was established in 1939 and is owned by the government of Sri Lanka. The Bank provides diversified Retail, Wholesale, International Development, Investment Banking Services, Credit Cards, SLIPS, RTGS Payments, Safe Deposit, Custodial and Pawn Broking services through a network of 305 local and 3 overseas branches (London, Male & Chennai) and the Off-shore Banking Unit. As of December 31, 2007 the BoC reported total assets of USD 3.8 billion, gross loans and advances of USD 2.5 billion, an ROA of 1.11 percent before tax, and an ROE of 14.59 percent after tax.

By Laura Anderson, Research Associate

Additional Resources:

Sri Lanka Daily News: More BoC Branches in North and East Soon

Bank of Ceylon: Home, 2007 Annual Report

The MIX Market: Countries: Sri Lanka

Consultative Group to Assist the Poor: Home, Country-Level Effectiveness and Accountability Review – Sri Lanka