In the early days of the COVID-19 pandemic, as the country plunged into uncertainty, how Damith Pallewatte responded to the challenge would prove his mettle and shape the course of his career at Hatton National Bank PLC (HNB), where he was then just moved on from the role of Chief Risk Officer to drive the growth as head of the wholesale banking businesses.
The banking sector was under siege—lockdowns disrupted operations, and the economic future seemed bleak as borrowers struggled to service their loans and trade stood still. Amid this chaos, Pallewatte recalls: “We had to move fast, but carefully. We wanted to keep the economy crawling at least without bringing it to a complete halt. That decision set the tone for how we would navigate the crisis.” It was a moment that showcased his unique approach to risk management and set the stage for his eventual appointment as Managing Director and Chief Executive Officer of HNB, one of Sri Lanka’s largest and oldest private sector banks.
Contrary to what one might expect of a Chief Risk Officer – a steady, cautious temperament – this move doesn’t imply a guarded approach but a bold intent for the future. Pallewatte’s appointment to helm the bank, at a critical period that would decide the country’s future, signals a strategy focused on driving growth with solid fundamentals.
The Astute CRO
In the current climate, with the country set for a watchful journey searching for its economic recovery, Pallewatte’s elevation from Chief Risk Officer to Chief Executive (and Managing Director) through leading the Wholesale Banking vertical might seem like a cautious move. Often, risk officers are favoured when market conditions are tough and less so during a boom. Recent history has shown how the world’s best banks sidelined their risk officers in pursuit of growth and caused the devastating subprime bubble and global financial crisis in 2007/08. It may appear that given the challenges surrounding Sri Lanka’s economic recovery, Pallewatte’s CRO skills will be more important to steady investor nerves.
However, his appointment signals something different. His track record suggests that HNB’s shareholders were looking for more than just caution; they wanted a leader who could confidently navigate uncertainty and drive growth.
“I am not here to be cautious and sit on capital. I will add value to the bank and its shareholders and customers. We can only do this by aggressively growing the business and opening opportunities for our customers on both the deposit and lending frontiers while maintaining our ironclad risk management strategy and processes,” he asserts.
Pallewatte was never a typical Chief Risk Officer. “As I built my career in risk management by diligently honing my knowledge and skills, I also realized that banks need to assume a measure of risk to fulfil their duty to society. So I also began to focus on growth. I was never obsessive about risk. I am firm about defining and maintaining a healthy risk profile. However, my job is not about eliminating risk—that would be a misconception about what we do as CROs,” Pallewatte explains.
As Chief Risk Officer of HNB, Pallewatte sharpened the bank’s risk management profile, elevated credit risk evaluation methodologies, and introduced centralized processes to mitigate risks across the bank, including external market, operational and reputational risks.
Centralization did not mean tight-fisted control, though. He also supported the bank’s investments in technology, expansion, and lending to growth sectors of the economy. This involved visiting over 250 branches to confer with frontline staff and meeting with customers ranging from farmers and small business owners to large corporations to understand their needs and requirements.
His approach to driving growth through calculated risk led the bank’s leadership to appoint him to head the wholesale banking business, which accounted for half of HNB’s asset book.
HNB’s Wholesale Banking Group (WBG) has been a key growth driver, offering a robust suite of digital banking solutions tailored for corporate and institutional clients. The bank delivers specialized financial services to top-tier corporates and supports large SMEs transitioning to corporate status. In trade finance, HNB excels, consistently earning industry accolades for its leadership in international transactions. The bank also plays a pivotal role in renewable energy project financing, ensuring compliance and strong returns.
Dominating the trustee and custodian services market, HNB manages major funds like the EPF, securing a 95% and 40% market share, respectively. Its Islamic banking division, holding a 20% market share, provides Sharia-compliant solutions, while its institutional banking arm facilitates global transactions and attracts foreign investment through strong international partnerships.
Pallewatte’s success in steering the Wholesale Banking Group through the challenges post the 2019 Easter Sunday attacks, through COVID-19, and the debt crisis ultimately convinced the Board of Directors to appoint him as the ideal succession to Managing Director and Chief Executive position of the bank in May 2023 to steer the bank through a crucial period ahead in the country’s economy. Since then until he formally took office in November 2024 with all necessary clearances from the Central Bank of Sri Lanka, he has abundantly demonstrated his mettle.
Not a Usual Candidate
Who is the better candidate for a banking Chief Executive? A Chief Financial Officer, the Chief Operating Officer, or perhaps the Chief Technology Officer? Any of these roles could lead a bank effectively, given the right mix of qualifications, experience, drive, vision, and leadership attributes.
However, specialization matters. Chief Risk Officers are not typically seen as the obvious choice for the top job, especially compared to Chief Finance Officers or Chief Operating Officers.
A 2021 report by Heidrick and Struggles found that of over 1,000 Chief Executives of publicly listed companies across 24 developed markets, only 3% were formerly Chief Risk Officers. Most had backgrounds as Chief Finance Officers (18%), Chief Operating Officers (24%), or were external Chief Executives helicoptered in (56%). Even Chief Technology Officers and Chief Marketing Officers had better chances of becoming Chief Executives, each at 4%. The report also noted that only 4% of Chief Executives had Chief Risk Officer experience compared to their predecessors.
Transitioning from Chief Risk Officer to Chief Executive of a bank is relatively rare, both in Sri Lanka and globally likely because the Chief Risk Officer role is believed to be so focused on risk management in all its facets including complex market and regulatory issues. While these skills are critical, Chief Executives need a broader range of abilities, from strategic vision to operational management. A Chief Risk Officer or any other professional can have these attributes in loads, but specialization does get considerable weight.
Yet, Pallewatte’s career has consistently defied expectations, proving that a Chief Risk Officer can lead with caution and boldness, risk and reward.
Tracing a Career Arc Through Crises
Pallewatte’s banking career, beginning in 1996, is closely linked with the economic and financial challenges that have shaped global and local economic landscapes. Since then, Sri Lanka has sought IMF assistance six times, averaging nearly once per Presidential term. Starting at entry level in a local bank, Pallewatte quickly grasped the complexities of the banking industry as the Asian financial crisis unfolded. Though Sri Lanka wasn’t directly hit, the crisis highlighted global market fragility and underscored the importance of risk management in building banking resilience.
As the millennium approached, Pallewatte found himself at the forefront of the banking industry’s transition to automation amid widespread anxiety over the Y2K bug. The pressure to ensure banking systems were compliant and operational was intense, with heated debates over the pace of technology investments. The transition occurred smoothly, teaching Pallewatte crucial lessons in agility and preparedness for unforeseen risks.
In the early 2000s, as he transitioned from support roles to the frontlines—engaging with customers and securing business—Pallewatte encountered another pivotal moment. The Sri Lankan banking industry began to recognize the growing importance of risk management. In 2003, Pallewatte made a strategic move into this emerging field just as global economic volatility was increasing.
Over the next 13 years, Pallewatte’s focus on risk management deepened, particularly during the 2007-2008 global financial crisis, a watershed moment for banking worldwide. Though Sri Lanka was not directly impacted by the subprime mortgage crisis, its global repercussions were felt across the country.
As his credentials in the banking risk management sphere grew, he was headhunted by another private bank to set up its risk protocols and structures. As Chief Risk Officer, Pallewatte played a crucial role in steering the bank through these turbulent times, embedding a strong risk culture that helped shield the bank from the worst effects of the downturn.
In 2015, as the financial crisis subsided, Pallewatte’s expertise in risk management capabilities led him to Hatton National Bank (HNB), where he saw an opportunity to apply his skills on a larger scale. With HNB’s extensive network and century-long legacy, Pallewatte was instrumental in HNB navigating the economic uncertainties that followed governmental changes and shifts in economic focus. His ability to centralize operations and standardize risk management across HNB’s vast network was essential in maintaining stability during this period of flux.
The true test of Pallewatte’s leadership came at the end of 2019 when he was appointed to lead HNB’s Wholesale Banking Group commencing January 2020, which held more than half of the bank’s assets. Shortly after, the world was hit by the COVID-19 pandemic, bringing unprecedented challenges to the banking sector.
Pallewatte recalls a pivotal moment during the pandemic: “We had to move fast, but carefully. That decision set the tone for how we would navigate the crisis.” He led the transition to digital operations, ensuring the bank could continue functioning despite lockdowns and restrictions. His leadership was instrumental not only in preserving the bank’s operations but also in finding ways to grow despite the challenges.
By 2024, after years of successfully navigating through economic upheavals and industry challenges, Pallewatte’s journey culminated in his appointment as Managing Director and Chief Executive Officer of HNB.
The Crisis in Focus
CROs are often perceived as tempering the aggressive growth ambitions of a bank, but Pallewatte challenges this notion. “It is a fair perception. It is something to deal with,” he acknowledges. “But my success, I believe, came from not fitting into that mould. I always looked at it this way: if you want to grow, you need to take risks, but you need to know what risks you’re taking. You need to develop your knowledge and skills. And so I did. I did my homework, invested in sharpening my skills, and everyone appreciated what I brought to the table.”
This approach defined Pallewatte’s tenure as Chief Risk Officer, where he was far from a conservative figure. When asked if he considered himself a cautious banker, his response was clear: “I’m a very passionate, persuasive, aggressive banker. When I start persuading, some know there’s no stopping me. If I want something done, I get it done. However, I am also uncompromising about managing risk!”
As the incumbent Managing Director/Chief Executive Officer, Pallewatte’s leadership philosophy is now guiding Hatton National Bank (HNB) as it plans to expand its footprint both geographically and across different financial services. “We’re in advanced stages of planning to expand geographically,” he explains. “We look at ourselves as a financial conglomerate—not just a bank. We have an insurance business covering both Life and General, a fully-fledged investment bank, a non-bank finance company, and a real estate company. We have all the ingredients; now it’s time to put them together, in the right proportion and ensure we grow faster than before.”
The economic crisis of recent years, which saw people take to the streets and a government change, was a stark reminder of the challenges facing Sri Lanka. The crisis brought the country to its knees with shortages of food, fuel, and electricity. Reflecting on this period, Pallewatte remains optimistic. “I never doubted the future,” he says. “I had enough opportunities to leave this country and earn much more elsewhere, especially in risk management, where opportunities are endless. But I always believed in this country.”
During the height of the crisis, Pallewatte frequently visited Galle Face, the de-facto headquarters of the Aragalaya (or People’s Struggle) to listen to what the protesters had to say. He understood the frustration but saw the underlying strength of the country.
“This country is full of resources, full of people who can do amazing things. It can never go down,” he asserts. Conversations with older, experienced colleagues reinforced his belief that Sri Lanka would recover. “I was told that similar situations happened in the 1960s, 70s, and 80s. People migrated, but the country remained. Those who left are now sending money back to their relatives. There’s a cycle, and this time will be no different.”
Understanding the Challenge
Pallewatte’s vision for HNB is deeply rooted in his understanding of the economic and policy challenges facing Sri Lanka. As a leader in the banking sector, he emphasizes the importance of balancing growth and stability, particularly in a country that has faced significant economic upheaval.
Reflecting on the current economic landscape, Pallewatte highlights the progress made in monetary and fiscal policy. “From a private sector bank point of view, we would like to see a good balance between monetary and fiscal policy, with controls in place to prevent the repetition of past mistakes,” he explains.
He acknowledges the improvements in inflation management and the reduction of interest rates, which have brought stability to the financial system. “The inflationary management framework is now very stable. We’ve seen inflation drop to single digits further sliding down leading to deflation, and we expect, once reverted, it to remain in the mid-single digits for the foreseeable future. Similarly, we’re in a low-interest-rate regime, which has edged up slightly, but we don’t foresee any immediate surge.”
Pallewatte also points to significant reforms in public debt management as critical to the country’s economic health. “Public debt management is a critical aspect, and the new acts being passed to facilitate this framework are encouraging,” he says. “These should have been done a decade ago, but at least now it is done. It’s important to get it right and put the framework in place.”
In addition to these economic policies, Pallewatte sees the IMF’s involvement as a positive force in improving governance. “The IMF’s governance diagnostic report has led to a national anti-corruption agenda, which will significantly improve governance and reduce corruption,” he notes.
However, he’s realistic about the challenges, adding, “Reducing corruption can’t be done overnight—nowhere in the world can it be—but we have a proper way to do it, and that’s a step in the right direction.”
Pallewatte is also deeply involved in discussions around labour reform, energy sector bills, and other legislative changes that he believes are crucial for Sri Lanka’s future. “We are moving into an era where we’ve done a fair bit of the right things,” he says. “What we need now is consistency. We can’t afford to see changes every time a new regime comes into power.”
A Vision for Growth
Looking ahead, Pallewatte envisions HNB playing a pivotal role in Sri Lanka’s economic recovery and growth. “HNB is worth much more than its current valuation,” he asserts. “The economy has started on a growth trajectory, and the role of the financial system in that growth is significant. We have all the elements to be part of that phase of growth.”
For instance, he believes the Central Bank’s new Banking Act would provide the necessary safeguards as the economy grows. “As a risk professional, I appreciate these safeguards. They’re necessary in our growth trajectory,” he explains. Using an analogy, he adds, “When you drive a car at 100km/h, what do you need most? Brakes. You need to know how to stop. That’s what these safeguards provide—a way to manage risk effectively.”
Damith Pallewatte’s appointment as MD/CEO of HNB marks a strategic move to drive growth, underpinned by robust risk management and a deep understanding of the economic landscape. Throughout his career, he has consistently challenged the notion that a CRO might lead with excessive caution and tight-fisted control.
Instead, Pallewatte has proven to be a leader who balances risk with aggressive growth and innovation. His ability to navigate multiple economic crises and implement strategic changes at HNB positions him as a forward-thinking leader with a clear vision for the bank’s role in Sri Lanka’s economic recovery.
HNB is evolving from a traditional bank into a financial conglomerate poised for expansion and consolidation, it already has a successful insurance business (HNB Assurance PLC), investment bank (Acuity Partners Ltd including Acuity Stockbrokers, Acuity Securities and Lanka Ventures PLC), Real Estate arm (Sith Development) and a non-bank finance company (HNB Finance PLC). HNB group’s total assets grew by 3.7% to Rs2.1 trillion in the first nine months of 2024, with deposits growing 2.7% to Rs1.62 trillion during the same period and a loan book which contracted during the first quarter of 2024 has since grown by Rs95.6 billion to Rs1.1 trillion.
Since Pallewatte assumed office earlier this year in the capacity of Acting Chief Executive Officer before taking over formal appointment as Managing Director and Chief Executive, HNB has been reorganized and settled down to a more sharply focussed organizational structure which will smoothly facilitate its aggressive growth objectives. At the core of this transformation was the structural alignment to achieve the vision, creation of space for innovation, drive for opportunities to improve productivity and efficiency and build prospects for “Hatna Family” members to grow and prosper in their careers.
“We’re solid at the bottom of the pyramid, especially in the agriculture and industry sector in addition to small manufacturers, entrepreneurs and aspiring micro, small and medium businesses. That’s our base, but we also work with multiple layers through to the top of the pyramid covering up to large corporates and multinationals too,” he says.
HNB is actively pursuing geographical expansion and opportunities for consolidation in the local market.
Pallewatte’s goal for HNB extends well beyond financial growth. He is dedicated to creating a dynamic workplace, fostering innovation, and embracing new technology. “I want to make this place a great place to work, a happy place to do business, and an innovative environment that would drive the bank, its stakeholders, people and customers, forward,” he states.
In his vision, HNB is more than just a financial institution—it’s a vital player in Sri Lanka’s journey toward economic recovery and growth. “We will be a key player in that expedition,” he emphasizes. “With our capacity, vision, and commitment, we will contribute to the growth of this country and elevate our economy to new heights.”
Quick Takes on the Economy, Governance, Debt Restructuring and HNB’s Focus on Digital and ESG
HNB’s Chief Executive Damith Pallewatte shares his insights on a few critical issues
Outlook on the economy: Sri Lanka is showing strong signs of recovery. GDP has expanded since coming out of the crisis for a few consecutive quarters, with a 4.5% to 5.0% GDP growth rate expected for the year 2024. Annual growth is expected to be in the region of above 4% in the next few years to come. Inflation, once peaking at 70%, has now fallen to a deflation hovering in lower single digits for a while, with projections settling in the mid-single digits in late 1Q 2025 and beyond.
Interest rates have dropped significantly from 30% to below 10%, though edging up slightly recently. Foreign exchange reserves are building steadily, now at $6.4 billion, and the exchange rate has appreciated from Rs365/$ in 2022-early 2023 to around Rs290/$ today. Tourism is also recovering, with 1.8 million arrivals in the first eleven months of this year, already surpassing 2023’s total of 1.48 million, recording $2.5 billion in earnings for the first 10 months of the year compared to the total of $2.1 billion for the whole of 2023. In the meantime, remittance inflows have increased by 10% year-on-year, reaching $5.4 billion in the same period up to the end of October.
Reforms and governance: We have made encouraging strides in policy reforms, and must maintain this momentum to ensure sustainable growth.
On the monetary policy front, inflation has been well-contained, and the Central Bank of Sri Lanka (CBSL) is now adopting a flexible inflation-targeting framework. This approach, along with the ongoing efforts to build up reserves and maintain exchange rate flexibility, remains essential for economic stability. The recent introduction of the Overnight Policy Rate, which shifted CBSL’s primary monetary policy tool from a dual interest rate mechanism to a single policy interest rate mechanism, though conceptually attractive, markets are yet to see its effectiveness through various interest rate regimes driven by credit demand among other contributory factors.
On the fiscal policy front, the recent approval of the Public Financial Management Act and the Public Debt Management Act by Parliament marks a major step forward. These measures will enhance fiscal discipline and debt management to improve the country’s financial health.
However, policies must remain consistent and not subject to frequent changes not aligned with achieving the country’s long-term vision and objectives. We must avoid prioritizing short-term gains at the expense of long-term negative impacts.
Governance reforms are equally important. The National Anti-Corruption Agenda is a positive step, but we must continue the reforms outlined in the Governance Diagnostic Report. Fulfilling the near-term commitments under the IMF Extended Fund Facility (EFF) programme is critical to addressing corruption risks and ensuring that governance improvements are both meaningful and lasting. The new government’s priority focus on digitalizing the economy is the single most influential and impactful decision made thus far and the policy framework must be built to support such digital transformations.
Impact of debt restructuring: The debt restructuring process, particularly with the introduction of macro-bonds, is set to have a significant impact on Sri Lanka’s economy in the long term. One of the key aspects of the negotiated Joint Working Framework is its ability to distribute the economic outcomes between creditors and Sri Lanka fairly. This means that if Sri Lanka’s economy over-performs or under-performs, both parties share in the benefits or losses, ensuring a balanced approach to debt management.
This framework gives Sri Lanka the necessary time to recover and build its reserves, which is crucial for the continued economic recovery. We must stay on the correct path to recovery to fully capitalize on the opportunities this framework offers.
The potential upside payouts are structured in a way that does not compromise long-term debt sustainability. It includes a control variable to mitigate the risk of higher payouts being triggered when the capacity to pay is weak. As a result, increased payments are expected to be balanced by an enhanced capacity to pay, minimizing the economic risk.
The recent placement of Sri Lanka under the Rating Watch for Upgrade by Moody’s is a testament to the upside potential of the country which recovered faster than any other which has undergone similar agony.
Navigating the economy: HNB is currently well-positioned to navigate the ongoing economic restructuring and absorb any potential shocks that may arise. Our capital levels are robust, with Tier I capital standing at 16.17% and total capital at 19.69%, well above the regulatory requirements of 9.5% and 13.5%, respectively. Additionally, we have recently completed a Tier II debenture issue of Rs12 billion, which will further strengthen our total capital levels.
Regarding our exposure to International Sovereign Bonds (ISBs), we have already made provisions covering 52% of this exposure. We are optimistic that options made available to the Local Consortium would enable the bank to recover a sizable portion of such impairments. Our Stage III provision coverage ratio is currently at 60%, which, combined with favourable economic conditions, lower interest rates, and prudent management practices, position us to improve asset quality significantly.
Empowering Private Enterprise: As an enabler of private sector growth, our focus extends beyond traditional lending to encompass a broader range of support mechanisms that drive sustainability and development for micro, small, and medium enterprises (MSMEs), and these include our advanced digital payment platforms, which streamline transactions and improve efficiency for small businesses. Additionally, we actively assist our clients in finding local and international markets where in we push ourselves to facilitate market access to improve revenue streams for our clients.
Capacity building and technical assistance are also key components of our approach, ensuring that MSMEs have the knowledge and skills to thrive. We offer subsidy schemes and value chain enhancements that provide critical financial support and help integrate these businesses more effectively into the economy.
We see significant promise in several economic sectors, including exports, local manufacturing, education, IT, pharmaceuticals, and healthcare. Our approach to facilitating growth in these sectors involves targeted financial solutions, strategic partnerships, and a focus on innovation, ensuring that we are not just a financial service provider, but a true partner in the progress of the success of the private sector.
Digital strategy: A key aspect of our digital strategy is facilitating a shift towards a cashless economy. We are actively promoting digital payments and creating ecosystems that support this transition. Our goal is to make digital transactions not just an alternative, but the preferred payment platform of our customers.
On the retail side, our digital app and digital wallet, SOLO, offer customers a seamless way to manage their finances on the go. We have also introduced ‘Non-Face-to-Face’ (NF2F) technology, further enhancing the ease of experiencing a completely digital banking journey. For our corporate clients, we have introduced our state-of-the-art Transaction Banking System- TxB-, a comprehensive digital banking platform that streamlines complex transactions and improves overall business efficiency.
ESG focus: One of the key areas in which we have made significant strides is green financing. For instance, the loan we obtained from the Global Climate Partnership Fund is a testament to our commitment to supporting environmentally sustainable projects. Additionally, a substantial portion of our borrowings from Development Finance Institutions (DFIs) is allocated towards initiatives that create a positive social impact, further underscoring our dedication to responsible financing. We are currently making progress on establishing a Climate Fund, which will allow us to further contribute to environmental sustainability and support projects that align with our ESG goals.
FDIs and development financing: For FDIs, we are committed to making the process as seamless as possible for investors. We support and facilitate the account opening process, ensuring foreign investors can easily establish and manage their financial operations in Sri Lanka. Additionally, we provide the necessary funding solutions to meet their specific needs, whether for setting up new ventures or expanding existing ones.
In terms of infrastructure development, HNB is actively involved in funding critical projects that are essential for the country’s growth. We offer financial support to contractors, issue guarantees, and facilitate the importation of necessary equipment, ensuring that infrastructure projects are completed efficiently and effectively.
By providing these services, HNB is not only supporting the current reform efforts but also playing a crucial role in enhancing Sri Lanka’s attractiveness as a destination for FDI and contributing to the country’s long-term development.