Malwatte Valley to invest Rs 1b on leisure, real estate

Shirajiv Sirimane (shirajivs@gmail.com)

Malwatte Valley Plantations PLC Company is investing over Rs. one billion to diversify their portfolio mainly into leisure and real estate sectors.

MalwatteValley Plantations Managing Director and CEO Willem L. Bogtstra said the tea industry is facing stiff competition and with high manufacturing costs they needed to diversify. “Firstly we have invested nearly US $ 450,000 in Melbourne to build four town housing units as a pilot project. This project was very successful as we have sold all four which has given us confidence to do a bigger project soon.”

“We now plan to build a further 12 units this year under the same concept,” he said. Bogtstra said doing business was easy in Australia and this was another reason for them to re invest. He said that with the Sri Lanka leisure sector booming they have decided to build a three star hotel in Hakgala in one of their estates. “Under a subsidiary company, Uva Resorts and Resorts Pvt Ltd, we will build on a defunct Tea factory and have 60 rooms.” “This will be mainly targeting the budget travellers and room rates would start from US$ 60 and we would also offer single occupancy.”

Since the location is close to Hakgala Gardens we will also have a large cafeteria and a shopping mall which would be something novel to the area.” Ashley De Vos is the architect of the project. The construction of the hotel is expected to be ready next year. “We also hope to build a similar 75 room hotel targeting the budget travellers in Vakarai, Pasikudah. “The investment for both hotel projects will be around Rs. 700 million and we hope to raise 40% from borrowings.”

Malwatte Valley Plantations also own and operate The Talduwa Manor resort in Dehiowita. This six roomed colonial bungalow was built in 1920. Bogstra said that they are looking at a fish breeding project in the Eastern province. “This would be for exports.”
www.dailynews.lk

Com Bank posts Rs 11.18 billion profit in 2014

The Commercial Bank of Ceylon has ended 2014 on a strong note, withstanding challenging conditions in Sri Lanka and Bangladesh to post profit before tax of Rs 15.736 billion for the year, an improvement of 8.45%.

The Bank reported profit after tax of Rs 11.180 billion, which reflected a growth of 7.03%, despite marginally lower interest income due to a drop in the rate of returns on interest earning assets.

However, the strong performance of the Bank's loan book, which grew by Rs 84.3 billion or 22.24% to Rs 463.6 billion, enabled the Bank to improve its net interest income by 5.2% to Rs 27.222 billion, buttressing profit growth. Interest expenses reduced to Rs 34.610 billion due to an improvement in the Bank's CASA ratio, as a result of its success in mobilising low cost funds in the period reviewed. Deposits increased by a noteworthy Rs 78.3 billion or 17.34% to Rs 529.4 billion over the year, at an average of Rs 6.5 billion per month, the Bank said in a filing with the Colombo Stock Exchange.

Gross Income improved marginally, due to the lower margins witnessed by the industry in 2014, to Rs 74.442 billion. The Bank's assets increased by a vigorous 31.29% to Rs 795.6 billion.

Bank Chairman Dharma Dheerasinghe said that in the face of challenges on both the domestic and international fronts, the efforts of the Bank's Corporate and Personal Banking teams had resulted in its lending portfolio growing appreciably in the latter part of the year, registering a growth rate considerably higher than in the previous quarters.

“Against a background of sharply declining interest margins, this healthy expansion of volume acted as a boost that raised the Bank's overall profits- a welcome consequence no doubt appreciated by all shareholders,” he said.

Dheerasinghe said the Bank had developed a strategy to diversify its activities in the year reviewed, with a particular focus on fee-based income. "In addition, the Bank launched several new products during the year aimed at improving product mix, as we cater to customer needs and preferences in areas such as credit cards, debit cards, loans, advances and savings products -including a new retirement-savings programme," he said.Commercial Bank's provision for financial VAT and NBT for the year totalled Rs 2.689 billion, an increase of 36.57% over the preceding year. Income tax, financial VAT and NBT as a percentage of the Bank's profit before financial VAT was 39.32%.

The Bank's Tier I and Total (Tier I + Tier II) Capital adequacy ratios stood at12.93% and15.96% respectively at end of 2014 and these ratios were well above the minimum statutory ratios of 5% and 10%.

Basic and diluted earnings per share for the review period stood at Rs 12.94 (2013 - Rs 12.10) and Rs 12.88 (2013 - Rs 12.09)respectively. The Bank's net asset value per share improved by 13.45% to Rs 81.44 from Rs 71.78 (2013).Shareholder funds grew by 15.70% to 70.512 billion in the 12 months reviewed.

The market price of Commercial Bank's ordinary voting share at year end was Rs 171, from Rs 120.40 at the end of 2013, while the non-voting share closed at Rs 125.10 from Rs 93 a year previously. Total market capitalisation at the end of 2014 was Rs 138.5 billion, surpassing US$ 1 billion, the highest in Sri Lanka's banking sector and the 3rd highest among all listed entities in the country.

At Group level, Commercial Bank, its subsidiaries and associates reported profit before tax of Rs 15.860 billion for the year ended 31st December 2014, an improvement of 7.96%. Profit after tax for the year grew by 6.33% to Rs 11.243 billion.
www.dailynews.lk

Monetary Policy Review – February 2015 - Policy rates unchanged

Year-on-year (y-o-y) headline inflation increased to 3.2 per cent in January 2015 from 2.1 per cent in December 2014 while annual average inflation declined marginally to 3.2 per cent from 3.3 per cent recorded in the previous month. The increase in inflation in January is attributed to higher food prices, which have now broadly stabilised. The impact of the recent downward price revisions of domestic petroleum prices as well as of essential consumer items would be reflected in official price indices from February, which would result in a considerable downward shift in inflation in the period ahead. Accordingly, it is expected that inflation, which has registered single digit rates in the post-conflict period, will continue to remain comfortably low in 2015.

In December 2014, credit extended to the private sector by commercial banks grew by 8.8 per cent on a y-o-y basis, maintaining its upward trend since August 2014. In absolute terms, credit obtained by the private sector recorded a historic high of Rs. 76.5 billion during the month of December, resulting in a cumulative increase in private sector credit of Rs. 223.9 billion during 2014. The sector-wise classification of credit growth indicates increased credit disbursements to the Industry and Services sectors in the latter half of 2014, which augurs well for economic growth prospects. With low nominal interest rates and improving business confidence, it is expected that credit extended to the private sector would grow at a healthy pace in 2015. During the year 2014, net credit to the government (NCG) from the banking sector increased by Rs. 134.6 billion while credit to public corporations increased by Rs. 80.9 billion. Broad money (M2b) recorded a y-o-y growth of 13.4 per cent by December 2014 compared to the projected broad money growth of 13.5 per cent for the year. Broad money growth averaged 13.3 per cent during 2014.

On the external front, the Sri Lankan rupee depreciated against the US dollar by 1.4 per cent by 20 February 2015 year-to-date, mainly due to higher import demand. With this seasonal demand gradually easing and the realisation of the anticipated foreign investment inflows, it is expected that the external sector would show greater resilience during the remainder of the year.

Taking the above factors into consideration, the Monetary Board at its meeting held on 23 February 2015, decided to maintain policy interest rates of the Central Bank unchanged at their current levels. Accordingly, the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank would remain at 6.50 per cent and 8.00 per cent, respectively. Access to the Standing Deposit Facility (SDF) will remain rationalised.

The date for the release of the next regular statement on monetary policy would be announced in due course.

Monetary Policy Decision: Policy rates unchanged.
Access to SDF remains rationalised.
Standing Deposit Facility Rate (SDFR) 6.50%
Standing Lending Facility Rate (SLFR) 8.00%
Statutory Reserve Ratio (SRR) 6.00%

Dr. Senthilverl moves to wind up Orient Garments PLC

A high net worth investor, Dr. Thirugnanasambandar Senthilverl has moved to have Orient Garments PLC compulsorily wound up by Court. Dr. Senthilverl is the single largest shareholder as well as a Director of Orient Garments PLC.

Dr. Senthilverl had previously called for a Board meeting of Orient Garments to have the same liquidated by Court under Section 219 of the Companies Act. However, as the other Directors did not agree to apply to Court for a winding up, Dr. Senthilverl has now presented a petition to the Commercial High Court of Colombo to compulsorily wind up Orient Garments PLC.

The petitioner, Dr. Senthilverl has stated in the petition that Orient Garments’ current assets are less than the current liabilities and that the company lacks working capital to continue day-to-day operations and that bank overdrafts have been obtained to pay worker salaries.

Orient Garments in desperation sought to infuse capital by way of a rights issue. However, the majority of the shareholders, 56% of the shareholders present and voting, voted against the rights issue, leading to its defeat. As such, without the money expected from the rights issue, the company is not able to pay its creditors.

In those circumstances, after hearing the submissions of Counsel appearing on behalf of Dr. Senthilverl, Avindra Rodrigo with Shanaka Gunasekara and Ananda Tikiriratna instructed by F J & G De Saram, the Commercial High Court Judge Amendra Seneviratne fixed the petition for hearing on 4 June and directed the copy of the petition to be served on the company and be published in newspapers and in Government gazette when the matter was taken up in the Commercial High Court of Colombo yesterday.
www.ft.lk

Sampath Group ups post-tax profit by 45% to Rs. 5.2 b

Sampath Bank yesterday announced that it has achieved a group post-tax profit of Rs. 5.2 billion in 2014, up by 44.8% or Rs. 1.63 billion from the previous year.

Post-tax profit of the bank for the year amounted to Rs 4.914 billion, as compared to Rs 3.430 billion achieved in 2013, which represented a growth of Rs. 1.484 billion or 43.2%. 

This was achieved despite extremely challenging external conditions of sluggish credit demand, excess liquidity and shrinking net interest margins (NIM).

Nevertheless, improvements in all sources of income namely other operating income (Rs. 968 million), net fee and commission income (Rs. 544 million), net trading income (Rs. 207 million) and a drop in impairment charge for loan and other losses (Rs. 2,471 million) contributed towards this growth in profit.

NII, which is the main source of income from the fund-based operations, representing over 68% of the total operating income, increased from Rs. 15.3 billion in 2013 to Rs. 15.7 billion in 2014, recording moderate growth of 2.5%, despite the continuous decrease in net interest margins (NIM). Net interest margins dropped from 4.39% in 2013 to 3.95% in 2014.This was mainly due to downward pressure on interest rates, lower credit growth in customer advances and the bank being compelled by market factors to invest excess funds in low yielding fixed income securities.

Net fee and commission income

Net fee and commission income of the bank increased to Rs. 3,087 million during the year under review from Rs. 2,543 million in 2013, recording a significant growth of 21.4 %. Growth in business volumes such as card operations, inward remittances, trade services and commission income from other banking service contributed mainly towards this growth.

Net trading and other operating income

Net trading income and other operating income, which accounts for 17.7% of the total operating income, recorded an increase of Rs. 1,175 million from Rs. 2,877 million in 2013 to Rs. 4,052 million for the year ended 31 December 2014. The main contributory factors for this increase were higher bad debt recoveries, charges recovered and exchange income.

Operating expenses

The operating expenses of the bank, which stood at Rs. 10,634 million for the year ended 31 December 2013, increased to Rs. 12,335 million for the year ended 31 December 2014, reflecting a growth of 16%. This was due to general price increases, increase in staff numbers by 312, coupled with salary increments given to staff members with effect from 1 April 2014.

In addition, the opening of eight new branches and 52 new ATMs island-wide during the year, expenses incurred to upgrade the standards of existing branch networks also contributed to the aforementioned increase.

Impairment loss on loan and receivables

Total impairment losses decreased during the year from Rs. 4,736 million in 2013 to Rs. 2,264 million in 2014, mainly due to reduction in impairment charge against pawning portfolio to Rs. 1,320 million in 2014 from Rs. 4,513 million in 2013. Individually significant impairment also recorded a slight decrease of Rs. 10 million and stood at Rs. 788 million for the year ended 31 December 2014.

Business growth

Total deposits as at 31 December 2014 stood at Rs. 342 billion with a growth rate of 13% compared to total deposits as at 31 December 2013, while the CASA portfolio reached a commendable 47% of the total deposits.

Even though the industry experienced slower credit growth, the bank’s total advances as at 31 December 2014 stood at Rs. 311.4 billion which was a growth of 14.6% compared to figures reported as at 31 December 2013.

Sampath Bank’s total assets crossed the Rs. 400-billion mark in 2014 and stood at Rs. 432 billion at the year-end even after settling a foreign currency borrowing which amounted to $ 100 million (Rs. 13 billion) during the first quarter of 2014.

Performance ratios

The cost to income ratio increased to 53.95% for the year ended 31 December 2014, from 51.23% in 2013. This increase was due to an increase in operating expenses as mentioned above and the slow growth in net interest income. ROA (after tax) and ROE (after tax) increased in line with increase in profit for the year ended 31 December 2014 and stood at 1.23% and 16.35% respectively. The statutory liquid assets ratio stood at 24.54% which was well above the mandatory requirement of 20%.

Capital adequacy ratios

The capital adequacy ratios stood at 8.83% (Tier 1) and 13.62% (Total) as at 31 December 2014, recording a marginal deterioration compared to the levels recorded as at 31 December 2013, mainly due to the payment of dividend for 2013 and increase in risk weighted assets for credit risk, as a result of credit growth happening mainly in loan products other than pawning. Nevertheless, both these ratios remained well above the minimum regulatory requirements of 5% and 10% respectively.

Future

Sampath Bank has demonstrated its ability to grow by focusing on enhancing customer satisfaction through improved service quality, combining effectively with human resources and technological innovations. It has proved resilient to external shocks through effective risk management processes and its ability to respond to changes in its operating environment.

Furthermore, as a premier responsible corporate citizen in Sri Lanka, Sampath Bank is continuing to focus and invest in development projects in vital areas of the country’s economy such as education, environment, community-based developments, etc.

Events after the Reporting Period: Super Gain Tax

As per the Interim Budget 2015, passed in Parliament on 7 February 2015, an additional one-off tax of 25% has been imposed on the profits the groups which have earned in excess of Rs. 2,000 million for the year of assessment 2013/2014.

The Sampath Group earned a profit in excess of such an amount for the stipulated period and accordingly the group will be liable to pay such an additional tax in the future.

Accolade

Sampath Bank has been recognised at many prestigious award ceremonies during 2014 including ‘The Euromoney’, which recognised Sampath Bank Plc as the ‘Best Bank in Sri Lanka – 2014’ for the second consecutive year.

Additionally, the bank has been adjudged the Best Commercial Bank and the Best Retail Bank in Sri Lanka by the World Finance Banking magazine.

Its 2013 Annual Report won the Gold award in the ‘Banking Institutions Sector’ and the bronze award in the ‘Overall Excellence in Annual Financial Reporting’ at the 50th Annual Report Award Ceremony, organised by the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka). A Sampath Bank television commercial on Sampath Sevana was also recognised as the Best Television Commercial of the Year – First Runner-Up at the Sumathi Awards 2014.

External rating

In the rating assessment for 2014, considering the healthy asset quality, better compliance, transparency, capital adequacy, internal control systems and processes of the bank, Fitch Rating Lanka Ltd. reaffirmed Sampath Bank Plc’s long-term rating as ‘AA-(lka)’, with a stable outlook and Lanka Rating Agency reaffirmed it as ‘AA’ with a stable outlook.

Furthermore, Fitch Rating Lanka Ltd. has assigned a credit rating of ‘A + (lka)’ to Sampath Bank’s Debentures issued in December 2014.
www.ft.lk