Amal Alles and Nimal Rathnayake, both Assistant General Managers – Branch Credit of Pan Asia Bank, share insights into how the bank is strengthening SME lending by refining its credit evaluation framework, aligning risk controls with regulatory and market realities, and customising solutions for underserved enterprises while maintaining sound portfolio discipline.
How does the bank evaluate SMEs with informal operations or limited collateral when assessing loan applications?
Amal: Rather than relying solely on audited financial statements, we assess the actual cash flow of the business through analysis of bank statements, utility bill payments, and transaction patterns. The evaluation process includes reviewing the frequency and volume of deposits, withdrawals, and supplier payments to determine the applicant’s repayment capacity.
Site inspections are conducted to verify business activity, assess stock levels, and examine operational records maintained by the enterprise. In cases where formal documentation is limited, the bank seeks external validation through references from suppliers, community members, and other financial institutions. The borrower’s creditworthiness is further assessed using detailed analysis of CRIB reports.
The bank maintains a flexible stance on collateral requirements by accepting movable assets, including machinery, equipment, and inventory. Additionally, personal guarantees from business owners, directors, or partners are often used to reinforce the lending arrangement. This approach enables the bank to extend credit to a broader segment of SMEs while maintaining prudent risk standards.
What are the most persistent obstacles SMEs face in securing credit, and how is Pan Asia Bank addressing these?
Amal: A large segment of SMEs in Sri Lanka face challenges in accessing credit due to the absence of audited financials, lack of traditional collateral, and limited familiarity with banking processes. Many operate without formal credit histories, making risk assessment difficult. Specific SME sectors are also seen as high-risk due to irregular cash flows and limited resilience during economic downturns.
Lengthy procedures and documentation requirements further discourage small entrepreneurs. To address these barriers, Pan Asia Bank evaluates credit proposals based on actual or projected cash flows rather than relying solely on audited financial statements. For viable businesses with positive track records, the bank offers facilities that are partially secured or backed by alternative forms of collateral, with pricing adjusted to reflect the associated risk.
Dedicated SME units have been established, staffed with trained officers who understand sector-specific dynamics. In parallel, it has implemented financial literacy programmes and capacity-building initiatives to help SMEs better navigate credit processes and manage their financial resources effectively.
In what ways is Pan Asia Bank differentiating its SME lending approach in a highly competitive credit environment?
Nimal: Our approach to SME lending is guided by a deep understanding of the unique challenges and growth trajectories of small and medium-sized enterprises. In an increasingly competitive credit landscape, we differentiate ourselves through a combination of responsiveness, customisation, and relationship-driven service. Our lending model is designed to be flexible and consistently adaptive.
The bank offers financing solutions tailored to the operational realities of SMEs we work with, including sector-specific repayment terms, collateral arrangements, and products that support both short-term working capital and long-term investment needs. We’re also investing in digital tools to streamline our credit evaluation and approval processes. This means faster turnaround times for our clients and greater efficiency across the board, all while maintaining the strong credit standards for which we’re known.
What is your outlook for SME credit growth, and how is the bank preparing for shifts in demand or risk?
Nimal: Given the current economic environment, we anticipate that SME credit demand will continue to be influenced by a mix of recovery opportunities and cautious sentiment across industries. While businesses are showing resilience and a willingness to expand, access to credit must be carefully aligned with emerging risks in the macroeconomic landscape. At Pan Asia Bank, we have a proactive and balanced approach. Our preparation begins with continuous portfolio monitoring and a refined risk assessment framework. This includes closer scrutiny of sector-specific exposures and more frequent stress testing to identify potential vulnerabilities early.
We are also enhancing our internal credit governance through improved early warning systems and borrower engagement mechanisms. These enable us to support our clients with timely requests, whether through restructuring, advisory support, or revised credit terms as necessary. Ultimately, our strategy is to support sustainable credit growth by striking a balance between opportunity and caution. We remain committed to enabling SME development while safeguarding asset quality and ensuring responsible lending across our branch network.
What specific credit risk frameworks or controls are in place to ensure sound lending decisions across Pan Asia Bank’s branches?
Amal: We have implemented a comprehensive credit risk management framework grounded in regulatory compliance and aligned with global standards. We strictly follow the guidelines of the Central Bank of Sri Lanka (CBSL), operate under Basel III and apply SLFRS 9 accounting standards to determine and manage expected credit risks. Our Board-approved credit policy manual defines lending criteria and sector-specific guidelines, helping manage exposure through limits on sectors and borrower types. Credit approval authority varies by officer rank and facility risk level.
All credit proposals undergo detailed financial and operational analysis, internal risk scoring, and a review of collateral, while proprietary risk modules enhance borrower assessments. Ongoing monitoring is integral. Independent credit committees review decisions and track early warning signs, and we diligently monitor post-disbursement performance, supported by periodic internal audits. We maintain borrower and sectoral exposure caps, conduct regular stress tests, and automated impairment assessments even as we closely monitor NPL ratios. Together, these measures ensure sound credit decisions, limit losses, and uphold portfolio quality.