With the outbreak of the COVID 19 global pandemic and its trail of destruction on human life and world economies, business revival and rehabilitation strategies across the financial industry emerged as a national requirement in Sri Lanka.
The country’s economic growth experienced a series of setbacks since the Easter Sunday terrorist attack in 2019, followed by the global pandemic in 2020. At present, the country is in a recessionary period where most of the micro and SME businesses are standing still and the emergence of new businesses are not on the horizon.
Both the direct and indirect workforce in the business sector have either lost their jobs or have been affected by salary cuts.
In this dismal scenario of an economic meltdown, BOC’s Business Revival and Rehabilitation Policy (BRRP) programme, has offered renewed hope to an entire segment of the Bank’s clientele whose businesses have been severely damaged by the recent catastrophic events.
An appropriate business revival and rehabilitation mechanism not only safeguards the Bank’s funds but also indirectly supports the country’s economy to move forward.
The Bank’s rehabilitation mechanism, unlike a standard recovery process, focuses on generating sufficient cash flow and profits, thereby enabling meeting its financial obligations in a disciplined manner. Customers have the added advantage of obtaining the support and advice of experts in the financial industry to direct them to expand their business as targeted.
The Bank of Ceylon (BOC) started focusing more actively on business revival in the aftermath of the Easter Sunday attack in 2019. However, the fully-fledged Business Revival and Rehabilitation Unit was established in 2021. Initially, centrally established to test the methodology, the Bank witnessed the success of Business Revival and Rehabilitation within a short period of one year, as of March 31st of 2022. Currently the Bank has set up 14 Regional Business Revival and Rehabilitation Units across the country at their regional loan centres (RLCs). These will further expand to the entire branch network by the end of this year.
“As the giant in the banking sector, it is our responsibility to initiate and lead the way in reviving businesses of our nation,” DGM (Recovery Provinces, Business Revival & Rehabilitation) Mr. M. R. N. Rohana Kumara said.
BMD spoke to DGM Rohana Kumara who has taken a lead in introducing the Business Revival and Rehabilitation Plan (BRRP) to all of their customers who are struggling to revive their severely damaged businesses.
Excerpts from the interview:
Q: What are the key objectives of BOC’s Business Revival and Rehabilitation programme?
A: A set of strategies adopted by a loss-making business under the guidance of its financial partner is called Business Revival and Rehabilitation. This is not a totally novel concept and has been in action on case by case basis, mainly focusing on loan recovery.
However, if banks are to insist on recovery in a period of severe economic downturn how would businesses continue? Actually, rigorous recovery is where the bank exits from the relationship with its client. If a potential business is not assisted with survival and reconstruction during a downturn, it would be compelled to cease its operations.
Businesses with financial difficulties are rarely catered to by another financial institution. A key factor in the speed and extent of the economic recovery of a country in downturn, is the revival of its business sector.
It is a well-known fact that the survival of any business entity depends on its ability to generate profit or maintain at least its break-even point. Among the stakeholders of a business’s existence and continuity are their lenders – the banks and financial institutions.
So, our key objective in BRRP is to create a programme where our customers make an agreement with the Bank to revive their falling businesses. So, we can work together with our customers in reviving their businesses, with the advice of experts in the financial industry to direct them.
Q: So far what has been the success rate of your business recovery and rehabilitation plan?
A: We are really proud to mention that we have revived large-scale business customers during 2021 by offering attractive and customized financial solutions to manage Rs. 30 billion worth of credit facilities. This has resulted in safeguarding over 10,000 direct and indirect employees. Bank of Ceylon has played a vital role in spearheading the revival of the country’s economy during one of the hardest periods ever to be experienced.
If we failed to introduce these timely strategies across the board to all our struggling businesses and simply resorted to a hardline recovery process, we would have been partly responsible for the slow death of so many businesses and the end of livelihoods for thousands of families. It is not healthy or economically progressive or viable for the government to continue to subsidise a section of its workforce who have been deprived of their source of income in an economic downturn. As bankers, it is our responsibility to revive businesses as much as possible.
Q: How do you assess the eligibility of your customers to be entitled to this scheme?
A: Every bank has its own credit policy by which all the activities related to lending are governed. Apart from Bank of Ceylon’s retail and corporate credit policies, the business revival and rehabilitation Policy (BRRP) has been approved by the Board of Directors. According to the BRRP, the Bank expects to play a big role in safeguarding valuable entrepreneurs of our country.
Hence, if the Bank has recognized an NPA customer which could be an individual or a registered business entity even with one employee, with room for growth and engaged in a proper economic activity, such customer may be considered for revival purposes. The business sector or size of the business is immaterial in ascertaining eligibility. In simple terms, we serve from beetle leaf sellers to the tea exporter to make sure that their businesses continue to prosper.
Unlike recovery techniques, in the business revival and Rehabilitation process, the Bank extends its fullest support to continue the business or to re-start a temporarily closed business. Therefore, the Bank is keen on the availability of key assets required for the business to continue without any interruption. This means the client should possess basic machinery or any other physical assets and key human resources required to carry out the business. Apart from these assets, the client should submit a viable business plan. The interest and dedication of the client to continue the business is most important.
Q: How do you differentiate a standard recovery mechanism from your Business Revival and Rehabilitation Plan?
A: Actually, there is a huge difference between the Recovery Mechanism and Business Revival and Rehabilitation. The recovery mechanism by which conventional bankers prefer to recover money lent by them, generally leads either to the breakup of the relationship maintained with the customer over a period or damages the relationship by closing up many avenues that may be available to rejuvenate the banker- customer bond.
This occurs when a bank is only interested in their own profitability rather than the continuity of the business when adopting recovery strategies, completely focusing on the recovery of money lent.
Business Revival and Rehabilitation techniques are built on the relationship between the bank and its customers. Recovery takes place automatically since the bank supports the client to continue their business by paving the path to move forward under the bank’s guidance. An appropriate business revival and rehabilitation mechanism not only safeguards the bank’s funds but also indirectly supports the country’s economy to move forward. The crucial fact under business revival and rehabilitation is that the Bank’s top priority is not profitability, but their steady support to generate profit from the business concerned.
Most customers that enter the business revival and rehabilitation plan have a grey financial history. A client with a damaged financial history faces so many difficulties when financial assistance is sought for their existence and growth. It is a norm of the financial industry of our country to analyze the client’s financial discipline based on its history. But customers under the business revival techniques will not be scrutinized based on their history. Instead, such a business will be closely monitored and guided to ensure generation of sufficient cash flow and profits, thereby enabling meeting its financial obligations in a disciplined manner. Customers have the added advantage of obtaining the support and advice of experts in the financial industry to direct them to expand their business as targeted.
Q: Why is the business revival process preferred to an aggressive recovery mechanism?
A: The existence of successful entrepreneurs of a country has a great impact on the stability of any economy. It is a daunting challenge for micro, small and medium entrepreneurs to achieve its developmental goals in our relatively small economy. As a state-owned financial institution and the country’s leading commercial bank with the largest client base, it is our responsibility to provide financial viability and security for our business clientele. Although our customers under the BRRP have been experiencing severe financial crises in the recent past, once upon a time they contributed immensely to the Bank’s growth. Therefore, the Bank plays its expected role in restoring them to where they were or progress beyond.
By adopting a customer-focused BRRP, the Bank attempts to retain its valuable customers and preempt a decline in the Bank’s creditworthy client base, which would be the case if a rigorous recovery mechanism was the only option offered.
As the leading Bank in our country, we do focus on sustainability rather than short-term profit. The Bank’s sustainability depends on the stability of its clientele. An aggressive recovery mechanism is a one-time process by which recovery of invested money and any amount of return in the form of interest are received. In most instances, aggressive recovery causes the winding up of a business too. By reviving a business, the same customer will be stabilized, opening many gates for the future. Revival not only helps the Bank to recover its lent money but also provides various chances for cross-selling. For example, a stabilized business will create more jobs and enhance its cadre. This offers opportunities to the Bank to expand its personal clientele by attracting the salaries accounts of such employees. While moving forward, the business will start to grow to increasing its goods and services in the industry concerned by obtaining more financial assistance from the bank which ultimately increases the bank’s credit exposure. Hence, in the long run, both parties will ensure sustainability.
Q: Can all recovery units be transformed into business revival units?
A: That is not possible. Commercial banks will not encourage willful defaulters to play with public funds. On assessment of the capacity of a borrower on repayment of the loan, the bank will make its best effort to recover the loan within the agreed terms and conditions. Business Revival and Rehabilitation will never provide room for any client who purposely delays or ignores repayment of loans. Also, not all businesses can be revived. There are some basic requirements to be fulfilled by the customer as discussed above.
Q: What is the importance and priority given to collateral/assets of borrower in the rehabilitation mechanism?
A: As mentioned, the main purpose of business revival is to ensure the existence of the business. The existence and continuity of a business depends on the successful generation of cash flow. Therefore, the Bank’s chief concern is the cash flow rather than the collateral. Because in lending, collateral is called the secondary way out, to liquidate in case of default. The primary way out is cash flow. Hence, as a gradually improving recovery is expected under the business revival and rehabilitation process, routing of 100% business cash flow through the unit is on the top of the collateral available with the client.
Q: Can the revival process be extended to the retail segment and individual borrowers?
A: No, a retail customer who has borrowed for consumption purposes cannot be revived. But an individual whose purpose was to engage in any economic activity could be revived.
Q: Can all loss-making businesses be revived? What commitments are expected for its success?
A: Yes, it is possible for any loss-making business to be revived as far as the customer is willing to walk in line with the agreed business plan under the bank’s guidance. It is very important to ensure that the customized business plan for the revival will be adhered to at all times and not changed without the consent of the Bank. Also, if total cash flow generated is routed through the Bank for evaluation and monitoring purposes, any loss-making business could be resurrected and directed towards growth. There are many customers who have risen to an unbelievable position in their industry despite the many obstacles they had to undergo during a global pandemic. They have shown their commitment and integrity towards the Bank which encouraged our team to open new pages to their success story.
Q: Any plans to extend BRRP to support businesses in growth and expansion as well?
A: Yes definitely. But it is subject to the fact that the business will first of all reach its break-even point. Once a business starts to perform above the break-even point, exploring ways and means to invest in new businesses are acceptable. Hence, the BRRU will closely observe the performance of the business to facilitate growth and expansion.
Q: What sort of expertise is necessary to work in BRRP under your purview?
A: The process involved with the business revival is somewhat complex than the conventional credit process of the Bank. Staff should be smart to spot the root cause of the present situation and propose suitable and customized solutions on time. Initially, at Bank of Ceylon, a small group of experts specially selected with the right attitude has been centrally located to cater to our entrepreneurs who have undergone severe financial difficulties due to various reasons. Each and every staff member coming under the BRRU is thorough with branch banking, corporate banking and relationship abilities to maintain a healthy rapport with various internal and external parties and especially analytical skills. They commit themselves beyond the expected service to make a better future for their clients. BMD