By Paneetha Ameresekere
Ceylon Finance Today: A key deal involving a local bank with foreign shareholding buying a sizeable stake in a recently bailed out bank by the Government of Sri Lanka (GoSL) and of its agents such as the EPF is now in limbo after the change of governments in the 8 January, 2015 Presidential Election, market sources told Ceylon FT.
This stake which was to change hands is being held by the EPF.
Currently, under banking laws, a single shareholding in a bank is limited to 10%. But, with Central Bank of Sri Lanka's (CBSL's) concurrence, it may be increased to 15%. However, under 'exceptional' circumstances, even those shareholding limits may be exceeded. A few examples of which are business magnate Dhammika Perera's control over Pan Asia Bank, blue chip JKH's control over NTB and DFCC Bank's control over DFCC Vardhana Bank, which controlling stakes are well over the 15% shareholder limits.
Meanwhile, businessman Ajit Devasurendra who had a stake in this once troubled bank, sold this stake a few days prior to the 8 January Presidential Poll, they said. "Probably, Devasurendra had that political sense to know which way Sri Lanka's political winds were blowing, that's why he sold his stake prior to the change of government!" they said.
Nevertheless, previously, CBSL wanted business magnate Don Harold Stassen Jayawardena to reduce his holdings in blue chip Commercial Bank and HNB as per CBSL's aforesaid banking laws to which Jayawardena complied. But the question then arises as to why the country's banking laws were being applied selectively by the previous regime which was unseated at the 8 January poll? They asked.
What is sauce for the goose should be sauce for the gander, sources said. Otherwise, the
selective application of banking laws may lead to questions of moral turpitude, they said. Further, such actions which tend to border on mala fide, do not encourage bona fide investments in to the country, the sources said.
Sri Lanka is badly in need of investments to provide employment opportunities to the 400,000 who annually enter the country's job market, CBSL's former Governor Ajith Nivard Cabraal speaking at a seminar a few days prior to the elections said. Consequent to that elections and the change of government that came with it, Cabraal who had been CBSL Governor since 2006 under the previous regime, resigned from office.
Foreign direct investments in particular are much needed by the country to reduce the deficit in the current account balance of Sri Lanka's balance of payments, caused by a deficit in its trade account.
Sri Lanka is an import dependent economy. Additionally, Sri Lanka is a heavily indebted country, with official public debt running to nearly 80% of GDP. In this backdrop, the island's foreign debt too has been steadily increasing.
Therefore, a weak rupee will not only make imports more expensive, but will also increase the Government of Sri Lanka's (GoSL's) foreign debt servicing commitments.
However, GoSL's local borrowings in order to buy the required US dollars to service its foreign debt would not only cause further depreciating pressure on the rupee, but will also create upward pressure on interest rates.
When interest rates rise, it makes borrowings more expensive. And when borrowings become more expensive, that shuns investments, especially private sector investments.
And when such investments don't take place, a question mark arises as to how to provide jobs to the 400,000 who enter the job market annually?
Nevertheless, foreign banking sources told Ceylon FT that after the election of the new government, European investors were queuing up to invest in the country.
In related developments, because of the feel good factor because of the change of government, the rupee which had been on a depreciating trend for the past five months since September 2014, changed gear on Tuesday (13 January), to appreciate by 30 cents to Rs 132.50 to the dollar in 'spot next next' trading.
www.ceylontoday.lk
This stake which was to change hands is being held by the EPF.
Currently, under banking laws, a single shareholding in a bank is limited to 10%. But, with Central Bank of Sri Lanka's (CBSL's) concurrence, it may be increased to 15%. However, under 'exceptional' circumstances, even those shareholding limits may be exceeded. A few examples of which are business magnate Dhammika Perera's control over Pan Asia Bank, blue chip JKH's control over NTB and DFCC Bank's control over DFCC Vardhana Bank, which controlling stakes are well over the 15% shareholder limits.
Meanwhile, businessman Ajit Devasurendra who had a stake in this once troubled bank, sold this stake a few days prior to the 8 January Presidential Poll, they said. "Probably, Devasurendra had that political sense to know which way Sri Lanka's political winds were blowing, that's why he sold his stake prior to the change of government!" they said.
Nevertheless, previously, CBSL wanted business magnate Don Harold Stassen Jayawardena to reduce his holdings in blue chip Commercial Bank and HNB as per CBSL's aforesaid banking laws to which Jayawardena complied. But the question then arises as to why the country's banking laws were being applied selectively by the previous regime which was unseated at the 8 January poll? They asked.
What is sauce for the goose should be sauce for the gander, sources said. Otherwise, the
selective application of banking laws may lead to questions of moral turpitude, they said. Further, such actions which tend to border on mala fide, do not encourage bona fide investments in to the country, the sources said.
Sri Lanka is badly in need of investments to provide employment opportunities to the 400,000 who annually enter the country's job market, CBSL's former Governor Ajith Nivard Cabraal speaking at a seminar a few days prior to the elections said. Consequent to that elections and the change of government that came with it, Cabraal who had been CBSL Governor since 2006 under the previous regime, resigned from office.
Foreign direct investments in particular are much needed by the country to reduce the deficit in the current account balance of Sri Lanka's balance of payments, caused by a deficit in its trade account.
Sri Lanka is an import dependent economy. Additionally, Sri Lanka is a heavily indebted country, with official public debt running to nearly 80% of GDP. In this backdrop, the island's foreign debt too has been steadily increasing.
Therefore, a weak rupee will not only make imports more expensive, but will also increase the Government of Sri Lanka's (GoSL's) foreign debt servicing commitments.
However, GoSL's local borrowings in order to buy the required US dollars to service its foreign debt would not only cause further depreciating pressure on the rupee, but will also create upward pressure on interest rates.
When interest rates rise, it makes borrowings more expensive. And when borrowings become more expensive, that shuns investments, especially private sector investments.
And when such investments don't take place, a question mark arises as to how to provide jobs to the 400,000 who enter the job market annually?
Nevertheless, foreign banking sources told Ceylon FT that after the election of the new government, European investors were queuing up to invest in the country.
In related developments, because of the feel good factor because of the change of government, the rupee which had been on a depreciating trend for the past five months since September 2014, changed gear on Tuesday (13 January), to appreciate by 30 cents to Rs 132.50 to the dollar in 'spot next next' trading.
www.ceylontoday.lk
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