Central Bank lifts regulatory leniency on small finance companies

By Bandula Sirimanna

The Central Bank (CB)’s action to stop its regulatory leniency from this year on troubled, small licensed finance companies without minimum capital has jolted those small lenders who are struggling to survive amidst stiff competition.

This move is aimed at protecting the public trust in the financial system with the introduction of a new mechanism to oversee the finance companies through early warnings and faster resolution, CB Governor Dr. Indrajit Coomaraswamy said in Colombo this week.

The ‘Enforcement Division’ of the Central Bank has been converted into a full-fledged department with effect from January 1 to carry out duties relating to enforcement and resolution issues pertaining to financial institutions.

The objective is to combat the pervasion of prohibited schemes and other unauthorised financial undertakings, while also curbing violations related to exchange management.

Assistance of the CID officers will also be sought to carry out investigations against errant finance companies, he disclosed.

The Board of Directors and the senior management of these institutions are also equally responsible for the operations of the institutions, he said adding that the CB will consider implementing the legal provisions against the errant senior management, if warranted, in the interest of depositors.

The minimum core capital requirement has been revised upwards from Rs. 400 million to Rs. 1 billion by January 2018, followed by Rs 1.5 billion in 2019 and Rs. 2 billion by 2020.

The CB may order to halt the taking of new deposits by small finance companies which fail to fulfill the Rs.1 billion capital requirement this year.

The strengthening of the capital position will improve the resilience of existing institutions while encouraging only the more financially efficient and effective companies to remain in the sector, he said.

However several heads of finance companies told the Business Times that the tightening of rules on capital adequacy and strict surveillance and stringent enforcement methods would have a big impact on their financial management and could even trigger the closure of some of the smaller companies.

This type of policing is not necessary to monitor finance companies; they said adding that it is not easy to raise the core capital up to Rs.1 billion this year under the present stagnate economic climate.

Presenting the annual Road Map for 2018, Dr. Coomaraswamy told a large gathering of top government officials, heads of financial institutions and CB officers that the rapid growth and broad outreach of the non bank finance sector necessitate proactive supervision and regulatory guidance.

While several regulations have been introduced to strengthen these institutions, some licensed finance companies have shown signs of stress, while the rapid expansion of certain others has been curtailed due to their lack of compliance with regulatory requirements.

This reiterates the need for continued strengthening of the existing regulatory framework of NBFIs to ensure the soundness of the sector and contain its spillover effects on the whole system, he pointed out.

Initiatives are already underway to resolve such weaknesses through mergers and recapitalisation of such finance companies through strategic investors.

There are also ongoing discussions on the encouragement of licenced finance companies to obtain credit ratings and list themselves on the Colombo Stock Exchange (CSE). This will, in turn, ensure financial stability and operational excellence while creating healthy competition.

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Krishan takes over as deputy chairman JKH

Krishan Balendra has been appointed Deputy Chairman of John Keells Holdings (JKH) with effect from January 1, taking over from Ajit Gunewardena who retired last month after a long career at the company.

In an announcement on Tuesday, the company said Mr. Balendra will assume office as company chairman on January 2019 on the retirement of Susantha Ratnayake, long-standing chairman of JKH, on December 31, 2018.

Gihan Cooray has been appointed group finance director and will take over as Deputy Chairman on January 2019. These appointments were earlier reported by the Business Times in its December 10 issue. The smooth transition of power and management has been planned over the years, company sources said.

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Tourist arrivals reach 2.1 mln in 2017

Sri Lanka ended 2017 at 2.1 million arrivals, marginally higher than 2016 but below an earlier target of 2.5 million tourist arrivals for reasons including flash-floods, outbreak of dengue and the partial 3-month closure of the main international airport.

Arrivals in January to November 2017 reached 1.87 million, a marginal 2.5 per cent rise from 1.82 million in the same 2016 period. Arrivals last month reached 244,536 against 224,791 visitors recorded in December 2016.

The latest figures are available in the Sri Lanka Tourism new-look, user-friendly website which was launched recently. The website also has a new feature, a Chinese-language segment, catering to Sri Lanka’s soon-to-be second largest source market.

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Treasury to meet SEC, brokers to hasten demutualisation

By Duruthu Edirimuni Chandrasekera

Treasury officials will meet the Securities and Exchange Commission and stockbroker representatives next week to discuss fast-tracking demutualisation (the process through which a member-owned company becomes shareholder-owned) of the Colombo Stock Exchange (CSE), top Treasury officials said.

This process has been progressing slowly for a while owing to dissent between the SEC and brokers over the percentage that the latter should own after demutualisation, Treasury officials said. “The stockbrokers want more than 60 per cent in CSE (which is what the SEC is willing to part with) and argue that they deserve more as they started the CSE more than three decades ago without any assistance. But the regulator is adamant that 60 is the number. Each broker will get a maximum of 5 per cent if they agree to the 60 per cent,” one official said.

Demutualisation has been discussed for nearly a decade, Treasury officials say noting that it’s about time something actually happened.

The SEC Bill is to be presented to Parliament on January 25 and if passed will expedite demutualisation and establish a central counterparty clearing and settlement mechanism, provide for the development of new capital market products, and enhance investor protection.

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Sri Lankan shares climb to near 2-month closing high

Reuters: Sri Lankan shares rose on Friday, closing the first week of the new year on a firm note, on the back of heavy foreign buying in blue chips.

The Colombo Stock Index ended 0.85 percent firmer at 6,514.73, its highest close since Nov. 11.

It rose 2.3 percent this week, in its second consecutive weekly rise.

Foreign investors net bought shares worth 357.1 million rupees ($2.33 million) on Friday, extending the net foreign inflow in this year to 1.96 billion rupees.

They had net bought 18.5 billion rupees worth equities in 2017 and 633.5 million rupees in 2016.

Turnover stood at 1.4 billion rupees on Friday, more than last year’s daily average of 915.3 million rupees.

Shares in conglomerate John Keells Holdings Plc rose 2.6 percent, Dialog Axiata Plc gained 3.1 percent and Melstacorp Ltd climbed 3.1 percent.

There was continued buying interest with an added interest in blue chips, said Dimantha Mathew, head of research at First Capital Holdings.

“There is renewed interest from foreign investors which is a good sign,” said Mathew, adding that he expected the positive trend to continue due to declining market interest rates.

Treasury bill rates fell 188 basis points to 216 basis points between March and end-December 2017, mainly driven by foreign investors buying treasury bonds, resulting in declining market interest rates.

The country’s 2018 economic growth trajectory is likely to help boost market sentiment, analysts said.

Sri Lanka’s economic growth in 2018 is forecast at 5-5.5 percent, bouncing back from an anticipated four-year low of less than 4 percent last year, central bank Governor Indrajit Coomaraswamy said on Wednesday.

The central bank kept its benchmark interest rates unchanged last week, saying inflation and private sector credit growth have cooled to a manageable level as policy makers focus on supporting a slowing economy. 

($1 = 153.4500 Sri Lankan rupees) 

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

DFCC Bank to raise Rs 7 bn via debenture issue

DFCC Bank PLC has decided to raise Rs 7 billion via a debenture issue.

Accordingly, the bank will issue 50 million Basel III compliant, subordinated, listed, rated, unsecured, redeemable debentures with a non - viability conversion option, each at an issue price (par value) of Rs. 100 with a term of up to 7 years (“Debentures”), with an option to issue a further 20 million of said debentures in the event of an over-subscription, subject to obtaining all necessary regulatory and other approvals.

DFCC Bank PLC is a fully-fledged Commercial Bank that offers an array of seamless retail banking solutions. This includes Savings and Deposit products that give customers unmatched value and unique benefits.

The Bank has been rapidly growing its footprint across the country with a network of 138 service points and 95 fully fledged branches.

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Renuka Capital acquires shares of ONAL

Renuka Capital PLC, acquired by way of a crossing transaction on the Colombo Stock Exchange, 2,143,035 ordinary shares of On’ally Holdings PLC (“ONAL”) at a price of Rs. 48 per share representing 12.245% of the voting rights in ONAL.

Renuka Capital PLC therefore now owns a total of 6,175,790 shares in ONAL representing 35.29% of the voting rights of ONAL.

Pursuant thereto, a mandatory offer at a price of Rs. 48 per share will be made by Renuka Capital to the remaining shareholders of ONAL in terms of Rule 31(1) (a) of the Company Takeovers and Mergers Code 1995 as amended in 2003, to acquire the ordinary shares held by such shareholders in ONAL.

Accordingly, in compliance with the provisions of the Code, Renuka Capital will make a detailed announcement on the mandatory offer in terms of Rule 8(1) read together with Rule 9 of the Code shortly.
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