Inside The banking industry in Sri Lanka

When Sri Lanka or then known as Ceylon was under the reign of the Sinhalese Kings and even the Portuguese (1505-1656) and Dutch (1656-1796), banking institutions and bank were still alien to the Sri Lankan culture. It had been only during the United kingdom colony (1802-1948) that Banking was created to Sri Lanka with mainly branches of foreign banks being create.

The CBSL was founded in 1950 under the MLA No. 58 of 1949 which was a major milestone in Sri Lanka's economical background. Today, the Central Standard bank is the regulating body of commercial banking companies.

Banks that can come under the service sector in Sri Lanka play a crucial role in its current economic climate contributing to about 60% of the GDP and utilizing about 40% of the full total workforce. The banking sector also keeps about 55% of financial sector investments as the others are kept by Insurance and PROPERTY companies.

Commercial Bankers have long their services from traditional banking to the areas. Examples include, product owner and investment bank, financial and marketing consultancy services, leasing, insurance, hire-purchase, factoring, costs discounting, pawn broking, underwriting etc, etc. They also have transformed from manual systems to computer founded systems and today to internet based systems and with especially the new entrants to the field participating in a significant role in introducing or making use of state-of-art technology to provide their products.

The non-bank finance institutions also have increased in quantity and style with leasing and insurance firms posing a larger challenge. The hazard created by finance companies has eased a little last year because of the recent financial crisis and with the collapse of some finance companies and the public losing self-confidence in them. This is also apparent from the increase in deposits experienced by the more stable, larger banking institutions.

In addition to stiff competition, new polices have also come into operation both locally as well as globally requiring banks to comply with such legislation. The BASLE II is one particular global rules and locally conformity with the Sri Lanka Accounting Specifications No. 44 on the display of financial devices no. 45 on identification and way of measuring of Financial Equipment which will be effective from January 2011 making use of more stringent rules for conformity. Also,

New NPA guidelines which requires the entire stock portfolio to be categorized as NPA when one service has fallen into such section

CSE introduced a new set of listing rules that was intended to bolster necessary and regulatory supervision

Provisions of the Bank Function on Abandoned property to safe safeguard such properties

Directives on Commercial Governance on inside control mechanisms and confirming systems following the global financial crisis

Adoption of Sri Lanka Accounting Standard No. 39 on share based payments

Introduction of GRI in its 2009 total annual report

The recent global financial and economical crisis also observed Sri Lanka facing troubles in declined demand for loans, reduced exports, reduced forex earnings etc. , as Sri Lankan companies were indirectly influenced by the turmoil.

With the lately concluded warfare in the united states and the liberty received, a new market in the north and east has exposed with all finance institutions and finance institutions making way to enter into the market. This will likely further have a detrimental impact on the lender if not properly looked into, as hitherto only a few banks were privy to the forex market with ABC plc being one particular party.

Introduction to and qualifications of ABC plc

ABC plc an area private commercial bank was born consequently of an merger between two other bankers and was included in 1970. This established the world for a huge in the bank industry to be delivered.

Catering to the neighborhood market as well concerning overseas market with both personal and commercial products and services, it has been able to entice a diversified selection of clients ranging from the villager to the complex businessman, from the businessman to the blue chip company.

The main activities of the bank stayed bank and related products in personal banking, corporate banking, treasury businesses, international functions, with insurance, stock broking and property development as subsidiary lines of business. Delivery stations include the considerable branch network, ATMs, internet banking, telephone and Text message banking, corporate finance and treasury divisions and abroad exchange properties.

They also loved local and international identification such as from Asia Money, Euro Money, being adjudged success to discover the best Annual Article by the local Institute of Chartered Accountants in Sri Lanka and regionally by the South Asian Federation of Accountants etc.

They have, the burkha listing on the Colombo Stock Exchange and an inventory in a foreign country because of the Global Depository Receipts given by the lender.

Over the years they may have consistently harvested in conditions of assets, profitability (Also send 4. 1) and branch network and were also in charge of acquiring the business enterprise of three other local loan company branches not only is it displayed in three countries in foreign countries through exchange homes. They have also become a group of companies comprising four subsidiary companies, two associate companies and a jv company.

Figure 1

Figure 2

Source: 2009 Annual record ABC plc

With acquisitions and mergers occurring at regular intervals, the bank has been faced with working with diverse civilizations and backgrounds of staff. In addition, with the establishment of exchange properties overseas, the combination cultural issues have grown to be part and parcel of its management troubles.

The 4300+ employees include Support staff, Trainee Bank Assistants, Banking Assistants and allied personnel, Junior Professionals and allied staff, Professionals and allied staff, management level, mature management level and commercial management level and managing director who consequently report to the board of directors.

Table 3

A little over ten years ago, ABC plc appreciated the status to be the best local standard bank and coming to number 1 position in the banking industry in conditions of assets, profitability and having a branch network of nearly 100 branches.

However, a decade later, ABC plc with a network of almost 200 branches spanning all 9 provinces, likes only the next best position, with one of its major challengers, XYZ plc overtaking them (Refer 4. 1).

Increased competition, better requirements from stakeholders, conformity with new legislation, all donate to the necessity to consistently show much better performance (Refer 1. 5).

The culture, management and procedures of the bank

Culture

Culture derived from the Latin phrase "cultura" indicating to cultivate, was subsequently described by the Oxford English Dictionary as "working out, development and refinement of brain, tastes and manners" and today known as a distributed set of behaviour, beliefs, goals and procedures that characterizes an institution. The culture would determine how things are done. The culture of the business is something that could have been built through the years and passed on from past leaders for this. Changing of the existing culture would require strong management and courage.

As an individual too, one's culture or backdrop and upbringing will be different. And since a business will consist of so many different individuals, blending of cultural variations will be important and vital for the building of an effective organization.

The culture of an organization plays a essential part in the control style exhibited by the organization.

Hofstede in 1983 developed four value sizes to make clear culture. The four value dimensions include individualism, vitality distance, doubt avoidance and masculinity/feminity (Deresky, 2002). Effective intercultural communication will depend on the scope to which these four measurements are known in the communication process.

ABC plc which was born consequently of any merger experienced a blended culture since its inception. Being designed at a time where leadership, internationally, was practiced in an autocratic, top-down way, also noticed ABC plc pursuing suit either knowingly or unknowingly.

Asians firms tend to be more bureaucratic, hierarchical, have central decision-making and are policy driven, where position, specialist and seniority are main things to consider (Crawford and Lok, 2003). This also signifies the ascription aspect as advocated by Trompenaars, (2002), where age group, seniority, position is valued at high level.

The culture of the united states would also affect the tactics in a local firm. Sri Lanka with a brief history of any hierarchical system has seen this affect being offered to the business sector as well. For example, in a Sri Lankan home the father is considered the highest specialist/leader and this has flowed to the business where the owner/boss is construed as having such authority.

Initially, even as an individual branch, the hierarchy was founded with the Manager "showing" and the subordinates "performing" on such instructions. Eventually this process was practiced whatsoever branches resulting in the establishment of your bureaucratic structure. Oddly enough, Fredrick R Kappel, one time CEO of AT & T defined "inbred management" as people who have been so entrenched in habitual techniques of handling the organization and not capable of change, creativity or even retaining organizational health.

Hierarchy

With the expansion of the branch network, the hierarchy started to grow with many levels between the management and the operative levels taking place.

Additionally, various management levels are also present such as the local management to forget about branch network, various committees and authorization structures comprising users from various types of staff, specialised departments such as corporate and business credit, risk management, accounts, anatomist etc. , which have a bearing on branches and where interlinks are needed for approval operations. Example, if a set asset must be purchased, the branch need will need the concurrence of the local management, then the authorization of the respected office such as procurement and accounts/fund, procurement committee and could be board, if it is a costly item. This would then be delivered for dialling of tenders and analysis by a separate committee and then your purchase of equipment finally taking place. Sometimes, this process could take so long as 6-12 months and may lead to inefficiencies due to the long process.

Leadership in Action

The then market leaders of ABC plc practiced what they noticed their bosses do as they didn't know anything better and would they have been allowed to do anything different given the culture which existed, even if they had known a better way is questionable. Also internationally as well, almost all of the motivational command started to be utilized only following the 90's.

Although this autocratic command style (Refer 2. 5. 1) felt able to the inception and during the early on 70's and 80's as evident from the growth and rewards achieved, it seems that the bank hasn't kept pace with the current tendencies and changing world economies and globalization to be able to move ahead.

Therefore, whilst the leadership role enjoyed by the first choice will determine the survival and success of the business enterprise, it will function as driving push to motivation and worker performance. This is generally known as the climate of the organization where the leader's action would directly contribute to setting up a positive local climate for employees to work or vice versa (Charan, 2006).

Climate/Practice

ABC being around for over half of a century, the ethnicities and techniques are strongly inbuilt into the system. Employees are terrified to talk about their anxieties and mistakes due to the consequences it might befall them. That is a disadvantage as others cannot study from the flaws already made which cannot be used as an instrument for lessons to be learned. Also this environment does not foster a good local climate within the business.

Communication is seen to occur only across the formal channels and across the hierarchy. Facility approvals also follow suit, which is dealt with at committee levels which has to check out the process and go through many levels to reach at the committee, eating much time, since these are done personally and the management also being geographically disbursed.

Dissemination of important info is not seen. Insufficient knowledgeable market leaders (Hogan, Curphy, and Hogan 1994) as well as them being unaware of what is happening as well as devoid of access to necessary data (cluelessness-story of Enron:you will be a leading company today and collapse right away) can be harmful to the business.

No management succession planning is seen to be present, since outside recruitment to top levels have been regularly occurring during the recent past. This has also earned irritation and dissatisfaction among employees.

Burns and Kiley, 2007 in their review done in 2006 claims that 50% of older executives recruited failed within 24 months. Recruitment insurance policies and type of recruitment will play a crucial role in identifying future ability for the business. Outside recruitment takes place at basic level and for particular positions when it can't be filled internally. A couple of Management Trainees are taken in periodically to infuse fresh blood into the management positions and gain new thinking but a higher turnover has experience.

Promotion in one grade to some other has been formalized with minimum amount eligibility requirements and also offers grading in just a category. However, this is more concentrated on experience somewhat than on performance, although employees are encouraged to specify themselves in banking with incentives being provided for having completed bank examinations.

Training is provided on ad-hoc basis to handle issues accessible.

Therefore, causing change to help make the environment conducive for learning and development will demonstrate the effectiveness of its command.

The goal and affinity for topic

The facts at 1. 1 and 1. 2 above has led the directors of ABC plc to investigate the reasons for being overtaken and what needs to be done to beat and regain the very best position once more in keeping with their vision to be the acknowledged innovator and chosen spouse in providing financial alternatives through motivated people and completing same through its objective of incorporating entrepreneurial spirit with empowered people and industry leading technology to constantly exceed stakeholder anticipations.

In order to solution this situation, the researcher has been involved as a consultant at ABC plc and the researcher desires to make ideal recommendations on conclusion of this study to help the lender regain its lost position in the ensuing near future.

As a preliminary to the study, an initial analysis was completed to get the general feeling as to the reasons and what went wrong. This has led to a surprising rvelation of lack of effective leadership having a bearing on the performance of the lender.

Therefore, this research is targeted at examining such assumption in building whether a relationship is present between effective management and performance of the bank and provide direction to achieve its aims at 1. 6.

The management problem

The declining market control as detailed above is the primary concern of the lender.

Despite increased success in comparison with prior years, the bank's main competition is still outperforming and continuing to be the market leader in the banking industry and earning many of the coveted awards and this is a significant concern of the management remember its vision to be the marketplace leader.

As such, in order to boost its performance and achieve its eyesight of being the marketplace leader, the bank has embarked on a study to see what has gone wrong and what needs to be done to be able to reclaim its position, predicated on the targets at 1. 6 below.

Objectives

The problem at 1. 5 has led the management to refocus on obtaining its vision of seeking to be the acknowledged head through empowered people.

Therefore, the goals of this research, based on the SMART theory (Saunders et al, 2007) are

To identify the many leadership ideas and their affect on the authority in the banking industry

To critically evaluate the extent to which control is used to improve organizational performance or

To identify the specific methods that require to be used by ABC plc to improve/develop their leaders

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