The Case Study - Seylan Bank

Growth and Its Challenges13“Despite (our) contribution towards the economy and the employmentwe have generated, I feel sad that we are not given a voice when it comes todevelopment plans or even in our own growth... I feel this is wrong because itis entrepreneurs like us who help grow the economy…”Other Warning SignsIn addition to the obvious indicators of overly ambitious expansion, industryobservers noted a growing number of signs that management at Seylan Bankwas not aligned with current professional standards for the industry. Amongmembers of the public as well, there was a growing perception that the Bankwas not being run properly.The indicators that aroused concern covered various aspects ofmanagement:• Seylan Bank’s cost-to-income ratio was the highest in the industry.• Its ratio of non-performing loans, ranging from just over 11% to more than 18%since reporting began in 1998, was similarly among the highest in the industry.• In addition to the shortfall in capital adequacy, there were other areas wherethe Bank failed to comply with minimum statutory requirements.• Seylan Bank was half the size of the country’s largest private bank in termsof assets, yet it employed virtually the same number of staff.• Operating expenses were as high, in absolute terms, as those of the nation’slargest private bank.• Productivity, gauged by assets per staff member and earnings per staffmember, was below industry norms.• Profitability, measured both by return on assets and return on shareholders’funds, fell significantly below industry norms - and below the returns postedby competing banks.