For decades, the role of a state bank appeared relatively straightforward: use its scale and balance sheet to support the state, finance national priorities and extend banking to people and places the private sector might not always reach.
People’s Bank is now attempting to rewrite that equation.
The clearest evidence is in its loan book. Five years ago, state-guaranteed lending accounted for 57% of total lending. Today, it is around 17% and falling. In its place, the bank has been building exposure to corporates and small and medium enterprises, fundamentally changing both where its capital goes and the risks it must learn to manage.
It is a significant shift for one of Sri Lanka’s largest financial institutions — and one that raises a bigger question about what a state-owned bank should look like in a recovering economy. At the centre of that transition is Chandana Guniyangoda, Chairman of People’s Bank and the first independent Chairman of a state-owned licensed commercial bank to be appointed under the strengthened governance framework introduced following Sri Lanka’s IMF-supported reform programme..
Guniyangoda does not see a choice between being a commercially successful bank and one that serves a national purpose. His argument is that the two must reinforce each other: a stronger, better-governed and more profitable People’s Bank will ultimately have greater capacity to support businesses, productive investment and economic growth.
The numbers give him some room to make that case. Return on equity is above 17%, capital adequacy is around 18%, and the bank recently raised approximately Rs25 billion in Tier 2 capital. Yet Guniyangoda is wary of pursuing growth simply for the sake of a larger balance sheet. His preferred description of the strategy is considerably simpler: “It’s about doing better business, not more business.”
He spoke to Echelon about remaking the loan book, putting the bank’s considerable balance sheet capital to more productive use, strengthening governance and accountability, navigating the tension between digitalisation and inclusion, and what it will take to build a state bank capable of competing on commercial terms without walking away from its national mandate.
As you take on the chairmanship of People’s Bank, what are the key priorities that will define its next phase of growth?
My immediate priority is to establish a clear and focused strategic direction. That has to bring together financial strength, scale, customer relevance, operational efficiency and our responsibility to the national economy. People’s Bank has tremendous reach and institutional strength. The challenge now is to use those advantages more effectively. We need to be technology-enabled and commercially disciplined while retaining the trust and accessibility associated with a state institution.
I have identified five strategic priorities. The first is strengthening the balance sheet and improving asset quality. A bank can grow, but unless the underlying quality of that growth is sound, it will eventually create problems. The second is improving productivity and cost efficiency. Scale should be an advantage, but scale also creates complexity and cost, so we have to become much more efficient in how we operate. Third is accelerating digital transformation. We have already made progress, but the pace of change in banking and customer expectations means we have to move much faster. Fourth is expanding quality lending to productive sectors and productive assets. It is not simply about increasing credit. We have to ask where that capital is going, what economic activity it supports and whether we are being adequately compensated for the risk we take. The fifth is strengthening governance, risk management and compliance. Accountability is particularly important to me.
A strategy is only useful if it translates into measurable KPIs. People must know what they are responsible for, performance has to be measured, and execution has to be continuously monitored. With stronger discipline, better risk assessment and faster decision-making, I believe People’s Bank can generate stronger returns on both assets and capital.
People’s Bank has to balance commercial profitability with a mandate to support national development. Can those objectives genuinely coexist?
I don’t see commercial sustainability and national responsibility as contradictory. I think the idea that we have to choose between them is a misconception. Priority sectors can generate adequate returns provided we maintain proper risk parameters, customer orientation and service standards.
The government will, at times, require state banks to support particular sectors or national priorities. That is part of our role. But where there is a specific development mandate, it should be clearly defined and measurable so that we understand the objective and can deliver it without undermining the bank’s commercial viability. Public purpose and commercial discipline should go hand in hand. In fact, they should reinforce each other. Profit is important in that equation because retained earnings are our most sustainable source of capital.
“We have to help customers migrate towards digital channels, but we cannot simply withdraw physical access before they are ready. So yes, the future is digital first. But for People’s Bank, it cannot be digital only. Financial inclusion has to evolve with technology, not become a casualty of it.”
People’s Bank has grown significantly over the last three years and recorded good profits, but there is still a legacy capital gap that we need to close. My view is that while the bank is in this phase of growth and generating competitive returns, we should retain more of those earnings to strengthen the balance sheet and support future growth. That does not mean the government should not receive a return as a shareholder. Historically, dividends have been around 15% of profit, and we are discussing a more formal dividend policy that takes both growth and return targets into account.
There was previously a proposal to bring private equity into state banks by selling around 20% to depositors and staff.The intention of that proposal had been to further bolster the capital to enable the bank to face any potential volatilities. Our profitability and capital position have improved since then, thus vastly changing the context and requirements. Hence our current focus is mainly on keeping strengthening the institution from within.
You are the first independent Chairman of People’s Bank under the strengthened governance framework introduced following Sri Lanka’s IMF-supported reform programme. What should independence and stronger governance mean in practice at a state-owned bank?
I joined the board initially as an independent Director and later became Senior Independent Director. Becoming Chairman has made me the first independent Chairman of a state-owned commercial bank in Sri Lanka under the strengthened governance framework introduced following Sri Lanka’s IMF-supported reform programme., which itself says something about the direction governance is taking.
For me, governance starts with clarity about who is responsible for what. The board’s job is to set strategic direction and hold management accountable. Management, in turn, must have the authority to run the bank — and must be accountable for the results. That sounds straightforward, but it requires clear delegation, proper board oversight, effective risk controls and timely information. Management needs the information required to make decisions when it can still act on that information, not after the event.
Commercial decisions should stand on their own merits. They should be based on risk, return and customer value. Accountability also has to mean something. Responsibility needs to be linked to targets, and there have to be consequences around performance. In a large state institution, those lines can sometimes become blurred.
Independence does not mean answering to no one. It means having the freedom to make the right commercial decision and then being prepared to own that decision. Our Board consists of both independent and non-independent members. We are blessed to have a strong team of eminent professional members in our Board as it creates an important foundation for the direction in which we want to take the bank.
People’s Bank has recorded strong financial performance. What will determine whether that momentum is sustainable?
For me, sustainability is not simply about this year’s profit. It is about the quality of the balance sheet underneath those earnings. Our return on equity is currently above 17%, while capital adequacy is also around 18%, comfortably above regulatory requirements. We recently raised approximately Rs25 billion in Tier 2 capital at around 11%. The timing was important because market rates subsequently moved beyond 13.5%.
But you cannot look only at headline numbers. We conduct our own annual stress-testing exercise, which is shared with the Central Bank. We test the balance sheet against credit and liquidity shocks, but also against wider risks such as climate events and geopolitical disruptions. We need to understand how the bank would perform under pressure, not only when conditions are favourable.
Asset quality is equally important. Excluding legacy issues, our Stage 3 loans excluding SOE loans are below 5%, which puts us in a competitive position against commercial banks. Our CASA ratio is around 35%. Cost-to-income remains around 39% to 40%, and that is an area where we need to improve.
Non funded fee income is another significant opportunity. It accounts for only around 10% to 15% of our net income, compared with more than 25% at some private-sector banks. There is clearly room to build more non-funded income and improve the quality and diversity of earnings. Perhaps the biggest opportunity, however, is simply using our scale more effectively.
Our loan-to-deposit ratio is only around 57% to 64%, while the market average is closer to 80%. If we can move towards 70% while maintaining the right risk-adjusted returns and asset quality, that represents considerable potential. That is what I mean by better business. It is not simply making the balance sheet bigger. It is getting more productive value out of capital allocations from the balance sheet we already have.
The composition of the loan book has already changed significantly. Where should People’s Bank be putting its capital as Sri Lanka returns to growth?
This is one of the biggest changes taking place inside the bank. Five years ago, state-guaranteed lending represented around 57% of our total loan book. Two years ago it was 29% and today it is approximately 17%. That capacity has increasingly moved towards corporate and SME lending.
It is important to understand that this also changes our risk profile. State-guaranteed assets carry relatively low risk weightings. Corporate and SME assets can carry much higher weightings — sometimes around 150%. So we cannot simply replace one type of lending with another and call that diversification. Every transaction has to meet an appropriate minimum risk-adjusted return before we approve it.
We also need to be careful about chasing credit growth for its own sake. The industry has been growing credit at around 25% to 35%, but that is significantly ahead of nominal GDP growth, which is closer to 5% to 6%. Our credit growth is closer to 10%, perhaps reaching around 12% by year-end. Part of that is because our state-owned enterprise portfolio continues to shrink, which affects the headline growth number. But I am comfortable with disciplined growth. Again, it comes back to doing better business rather than simply more business.
The emphasis should be on productive sectors. SMEs are particularly important because they generate employment and economic activity across the country. Exporters, tourism, cooperatives, agriculture, renewable energy and manufacturing are also sectors where finance can translate directly into productive capacity. With SMEs, however, money alone is not the answer. Many businesses need advice, financial literacy, better financial management and access to tools that allow them to become more sophisticated enterprises.
If People’s Bank can help bring more of those businesses into the formal financial system, strengthen them and help them grow into larger enterprises, we are doing more than expanding our loan book. We are helping expand the productive base of the economy. That is where the development role of a state bank and the commercial opportunity can come together very naturally.
Digital banking, AI and changing customer expectations are reshaping financial services. What does that mean for a bank with 746 branches?
Digital is no longer an option or simply one component of the strategy. Increasingly, digital is the strategy. Ten years from now, customers will expect banking to be even faster, simpler and continuously available through their phones. That means branches, mobile banking, internet banking and other channels cannot continue to operate as separate experiences. They have to come together into one omnichannel model. We are already seeing that change. People’s Bank has 746 branches, but around 80% to 85% of our transactions now happen outside branches, including transactions through ATMs.
AI will also play an increasingly important role. We are already looking at applications across fraud detection, credit assessment, risk monitoring and operational efficiency. But AI has to sit within strong data governance and cybersecurity frameworks. Human oversight is non-negotiable.
At the same time, digital transformation cannot mean leaving people behind. A significant proportion of our customers are still not comfortable with digital tools or do not have reliable access to them. Around a third of our branches exist largely because of that reality. They serve pensioners, rural communities and places where the next town may be 15 kilometres away. If you look at those branches purely through a conventional commercial lens, some may not make financial sense. But that is also where our role as a state bank becomes important.
We have to help customers migrate towards digital channels, but we cannot simply withdraw physical access before they are ready. So yes, the future is digital first. But for People’s Bank, it cannot be digital only. Financial inclusion has to evolve with technology, not become a casualty of it.
Your career has spanned commercial banking, financial management and institutional restructuring. What have those experiences taught you about transforming an organisation of this scale?
One of the most important lessons I have learned is that institutional transformation is not simply about strategy or technology. Ultimately, it comes down to people, culture and execution. You can have an excellent strategy, but it has very little value if the organisation does not have the leadership capability, discipline or culture required to execute it.
My approach is therefore centred on empowered leadership, merit-based performance, clear accountability, continuous learning, collaboration across functions and faster decision-making. This becomes particularly important in an organisation of this scale. People’s Bank has around 8,500 employees. That creates complexity, but it also creates enormous capability if people are empowered to use it. Employees need to be encouraged to make responsible decisions and then take accountability for the outcome.
We also have to break down silos. Large institutions naturally develop functional boundaries over time, but customers do not experience a bank as separate departments. The organisation has to work together.
Developing the next generation of leadership is another priority. We have recruited 100 management trainees because we need to create a stronger pipeline of people who can eventually take on larger responsibilities across the bank.
Change also has to be handled intelligently. You cannot walk into an institution with this history and scale and assume everything needs to be replaced. There are things that work extremely well and institutional strengths that should be protected. The task is to preserve what works, identify what does not, and have the discipline to fix it.
Looking five years ahead, what would tell you that the transformation of People’s Bank has succeeded?
Five years from now, I want People’s Bank to be recognised as financially strong, professionally governed, technologically advanced and genuinely trusted. I want our employees, customers, regulators and owners to be proud of the institution. But I do not want this chairmanship to be measured by what I said I would do. It should be measured by what was actually built. There should be tangible outcomes.
I would expect to see stronger and more resilient financial performance; a healthier loan portfolio with non-performing exposure well under control; better operational efficiency; stronger capital and risk management; wider adoption of digital technology; a deeper SME and productive-sector lending book; higher customer satisfaction; a stronger leadership pipeline; and clearer accountability throughout the organisation. Most importantly, I want People’s Bank to prove that commercial success and national economic contribution are not opposing ideas.
A state bank should be capable of competing commercially, earning an appropriate return on its capital and maintaining strong governance while also using its scale and reach to support the economy. Those objectives can coexist. In fact, I believe one makes the other more sustainable.
Success, to me, would be leaving behind an institution stronger than the one I inherited — financially sound, better governed, more relevant to its customers and capable of competing in the future. And, ultimately, a People’s Bank built to serve Sri Lanka for generations to come.