Smaller banks challenged by Basel III and minimum requirements

Raising equity capital has been on cards for a considerable time for commercial banks with the Central Bank (CB) issuing the new directions in December last year, but smaller banks will be challenged, analysts say.

Banks such as Union Bank, Pan Asia and Nation’s Trust Bank (NTB) haven’t cleared these thresholds. Out of these three, NTB is likely to reach the limits with this year’s profits, the analysts say. The other two will need to bring capital in.Commercial banks with an asset base over Rs. 500 billion are required to maintain certain capital levels. They have to maintain a minimum tier 1 ratio of 7.75 per cent, 8.875 per cent and 10 per cent by July 2017, January 2018 and January 2019 respectively. This is stipulated as per Basel III requirements which are a comprehensive set of reform measures, developed by the Basel Committee on banking supervision, to strengthen the regulation, supervision and risk management of the banking sector. Also the CB has increased the minimum capital requirement of banks to Rs. 20 billion, from a current Rs. 10 billion, by next year.

Analysts said that with this mandatory capital, financial institutions are required to hold in addition to other minimum capital requirements, the smaller banks will go for rights issues or debentures this year. Analysts say that while the top five hanks (Commercial, HNB, Sampath, Seylan and NDB) have cleared these thresholds. HNB last month announced that it was issuing up to 70,082,228 new ordinary shares comprising 55,995,792 ordinary voting shares and 14,086,436 ordinary non-voting shares by way of a rights.

The purpose of the share issue is to strengthen the capital base/balance sheet of the bank and to support the overall business growth of the bank, it said in an announcement to the Colombo Stock Exchange.

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CSE: Foreigners ‘activated’ by Aussie roadshow

By Duruthu Edirimuni Chandrasekera

Foreign inflows mainly from Australia have led to a marked improvement in trading during April following the recently-conducted ‘Invest Sri Lanka’ investor forums in Australia, the Colombo Stock Exchange (CSE) says.

Australian inflows have contributed a total of Rs. 487.62 million since the events in Australia. The CSE in April saw keen interest among foreign institutional investors where net foreign inflow as at April 23 was Rs. 14.3 billion year-to-date in 2017, up from Rs. 383.5 million in 2016.

Overall foreign investor activity has seen a rise in 2017, with a net foreign inflow of Rs. 16.5 billion, a vast improvement compared to previous years, which recorded an inflow of Rs. 383.5 in 2016, the CSE said in a statement.

Consistent foreign inflows have been a standout feature of the performance of the market in recent weeks, with net foreign inflows for 21 consecutive trading days by the end of trading on Friday, April 21 barring the first week of early May. This slump in foreign buying this week analysts say is due to profit taking and is an expected trend.

The key is to work out which funds are actually investing in the CSE these days, an analyst said noting that if its larger emerging markets funds, the Indian sub-continent funds or frontier funds that are buying, then the CSE is really up on the deal.

CSE officials said that those who’re investing are not ‘new’ funds, but they were inactive for the ‘longest’ time.”They have been inactive, but they were impressed after the Australian roadshows,” a CSE official told the Business Times.

Dilshan Wirasekara, CEO First Capital noted that stocks offered good value, but some stocks are underpriced when compared to PE multiples regionally.

Commenting on the development, Head of Market Development, CSE Niroshan Wijesundere stated, “We are pleased to see the events in Australia having a positive effect on the turnover flowing in from the country. This is consistent with a trend that we have experienced with foreign investor forums conducted in the past, where these events almost immediately rejuvenate the interest in the Sri Lankan capital market. The presence of the stock brokers who travelled with the delegation to Australia also played a vital role in following up and securing such investments.”

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Mobitel plans to break away from SL Telecom

Mobitel (Pvt) Ltd, Sri Lanka’s national mobile service provider, will operate as an independent entity exiting from Sri Lanka Telecom after functioning as its subsidiary for more than 14 years.

The company will be listed in the Colombo Stock Exchange (CSE) this year with the aim of broad-basing the ownership of Mobitel which is a fully owned subsidiary of Sri Lanka Telecom, official sources disclosed. Details of the listing and other steps are yet to be finalised.

This decision of the future of Mobitel was conveyed to the Cabinet Committee on Economic Management (CCEM) recently.

The government will exit partially or fully from non-strategic investment in Mobitel and several other institutions including Lanka Hospitals, Hotel Developers PLC (Colombo Hilton), Hyatt Residencies, Waters Edge and Grand Oriental Hotel.

The government’s policy in state owned enterprises will be driven by the strategic placement of its investments in relation to the economy, a note submitted to the CCEM revealed.

According to the note, such action will allow the government to raise at least US$1 billion to settle the existing uneconomical, questionable and high cost debt that the present government inherited from the previous regime.

When contacted over the phone for further clarification, Minister of Telecommunication and Digital Infrastructure Harin Fernando told the Business Times, that the government has decided to tackle over-capacity in Sri Lanka’s telecommunication industry while making Mobitel a strong operator by broad-basing the ownership.

The government has decided to separate Mobitel from SLT as it is keen to streamline its portfolio of investments, he said.

The overcrowded mobile phone industry remains the key medium-term risk to telecom operators in the country, he said, adding that Mobitel would be allowed to operate independently.

This company, a subsidiary of SLT is managed by a separate administration even at present and operates on its own, he pointed out emphasising that the proposal to allow it to run as an independent entity after listing in the CSE was also included in the 2016 budget.

Mobitel accounted for over 45 per cent of SLT Group revenues and it is the highest income earner among SLT’s eight subsidiaries.

Mobitel, which started operations in 1993, became a wholly owned subsidiary of SLT in October 2O02.

The company is currently in the midst of expanding its network of base stations to 5300 nationwide, from the present level of 3500, an endeavour that will see its coverage expand to 100 per cent of the population. -(Bandula)

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New monthly public auction system for Treasury bonds soon

The Central Bank (CB) is in the process of seeking Monetary Board approval to launch a new monthly public auction system for Treasury bonds with an underwriting facility.

The CB is also planning an overhaul of regulatory and supervisory system with rules and principles to promote market discipline, as part of measures to improve transparency in the Government securities market.

A media release from the CB this week said it had mandated primary dealers and licensed banks to use the Bloomberg electronic bond trading platform to trade repurchase transactions (repos) in government securities.

This means dealers are required to quote and trade repos between them in the trading platform, and report in the trading platform repos carried out over-the-counter with investors, each of Rs. 100 million or above within 30 minutes of the completion of each repo transaction.

“Accordingly, the system testing and monitoring have now been completed. The CB will release the daily summary trade information of repo volumes and yield rates based on standardised tenures such as overnight, one week and two weeks shortly for the information of the market participants,” the release said.

This is the third stage of Bloomberg trading platform designed for trade of government securities in Sri Lanka. This trading platform first commenced on August 1, 2016 for outright trade of government securities of Rs. 50 million or above carried out through primary dealers which was extended to licensed banks with effect from September 15, 2016.

“Accordingly, such outright trades reported up to March 31, 2017 amount to Rs. 1,128 billion of 6,763 transactions,” the release said adding that the transparency brought to the market will improve the price discovery and increase the market liquidity and outreach which will reduce the cost of borrowing in the medium term.

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Sri Lankan shares post 1-yr closing high on continued foreign buying

Reuters: Sri Lankan shares rose to a one-year closing high on Friday, led by banking and diversified stocks, on continued foreign buying.

The Colombo stock index ended 0.58 percent stronger at 6,640.57, its highest close since May 2016. It added 0.5 percent for the week, its sixth straight weekly gain.

Foreign investors net bought shares worth 82.4 million rupees ($541,215), extending their year-to-date investment in equities to 16.61 billion rupees.

They bought a net 14.1 billion rupees in the last 30 sessions, and out of these, the bourse saw net foreign buying in 29.

"The market is up with continued foreign buying and active participation of local retail and high net-worth investors, which was lacking for some time," said Dimantha Mathew, head of research, First Capital Holdings PLC.



Analysts said the market would continue to be bullish amid mild profit-taking.

The IMF said on Wednesday its executive board is expected to consider a request from Sri Lanka to conclude the second review of a $1.5 billion loan, which could help the island nation to receive the third disbursement.

Shares of Commercial Bank of Ceylon Plc rose 0.3 percent, Dialog Axiata Plc climbed 1.7 percent, C T Holdings Plc gained 2.6 percent and Ceylinco Insurance Plc ended 2.19 percent firmer.

Conglomerate John Keells Holdings Plc rose 0.49 percent and Hatton National Bank Plc ended 0.48 percent firmer.

Turnover stood at 767.5 million rupees, less than this year's daily average of 899 million rupees. 

($1 = 152.2500 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Subhranshu Sahu)

Registration fee for private companies slashed by 73-pct

For the first time in Sri Lanka’s corporate history, heavy fees levied for registering a new Company, has been scrubbed by the government in a big way-reducing as much as by 73%.

And new companies born in Sri Lanka last year surged by 7 percent while the key state institution in charge of such new company registrations itself reporting an enormous revenue flow to it’s coffers in 2016.

““I am pleased to inform the House that as part of changes in fees, we have reduced the fee of registration of a Private Limited Company by as much as Rs 11000. In that we reduced this fee from Rs 15000.00 to 4000.00 to develop entrepreneurship in Sri Lanka. All fee changes are effective from January 1, 2017,” declared Minister of Industry and Commerce Rishad Bathiudeen on 4 May in Parliament.

Minister Bathiudeen was making a statement on the increase of Company registration fees by his Registrar of Companies (RoC) as a follow-up to the proposal made in 2016 Budget as well as reporting the performance of RoC under his Ministry to the Parliament on 4 May. The proposal made in Section 419 of 2016 Budget speech was to review fees and charges made by different government entities every three years by all the Chief Accounting Officers and Accounting Officers including Revenue Accounting Officers in public sector entities. The revision of company registration fees by RoC follows on this Budget proposal. The revised charges are effective from 1st January 2017.

“In 2016, the income of the Department of Registrar of Companies under my Ministry increased by a huge 182% to Rs 1.78 Billion from 2015’s Rs 632 million. Also 8289 new companies were registered in Sri Lanka in 2016. Registration of foreign companies in Sri Lanka also increased by 17% to 41 in 2016. Even new Registrations of Associations under Section 34 increased by 140% to 367 in 2016.”

The bulk of the new companies annually registered in Sri Lanka are such Private Limited Companies. For example, no less than 97% of 2016’s new 8289 company registrations were in this “Private Limited Company” category.

“Three types of changes are introduced by the Registrar of Companies which comes under the purview of Ministry of Industry and Commerce, in keeping with the proposal made in Sec. 419 of Budget 2016. The “three (03) changes” are the Fees for Societies, Fees Regulations to renewal and registration of Auditors and introducing a ‘new qualification’ to be registered as a Company Secretary in Sri Lanka” said Minister Bathiudeen.

Among the upward fee revisions were the fee for registration of a Public Limited Company under Form 1 increased from Rs. 15000.00 to Rs 20000.00, fee for registration of an unlimited company increased from Rs. 12500.00 to Rs 15000.00, Fee for registration of a company limited by Guarantee under Form 5 increased from Rs. 25000.00 to Rs 30000 and fee for registration of mortgages charges and debentures has been increased from Rs. 5000.00 to Rs 7500.

Speaking of revision to qualification to be a company secretary, Minister Bathiudeen stated: “The Qualifications to be registered as Company Secretaries were not amended and was not considered as a new qualification for past years. The Institute of Certified Management Accountants (CMAs) of Sri Lanka requested to consider their qualifications to be registered as “Company Secretaries” under the said Gazette Notice. Advisory commission on Company Law reviewed the said request and agreed to accept the said qualifications to be registered as Company Secretaries”.

The Amendment on Company Secretaries has been made by the Minister using Extra Ordinary Gazette Notices No. 1998/11 dated 20th December 2016 under the section 527 of the Companies Act No. 07 of 2007.”

(Media Release by Ministry of Industry & Commerce)

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Sri Lanka raises US$1.5bn for 10 years at 6.2-pct

ECONOMYNEXT - Sri Lanka has raised 1.5 billion US dollars at 6.2 percent from a 10-year sovereign bond, lower than the initial price guidance, after getting orders of more than 11 billion US dollars.

Bloomberg Newswires said US investors bought 58 percent of the issue, Europe 22 percent and Asia 20 percent.

Fund managers and asset managers bought 83 percent, banks 9 percent, insurance and pension funds 5 percent and others 3 percent.

The bond was launched Thursday with initial price guidance of 6.625 percent and narrowed to 6.25 percent later.

The unsecured bond was given an expected rating of B+ by Fitch in line with the country's credit rating.

The bond was managed by Citi, DB, HSBC, JP Morgan, Standard Chartered and China's CITIC CLSA Securities, ICBCI.