Sri Lankan shares fall to 4-1/2 month closing low on budget worries

Reuters: Sri Lankan shares edged down and closed at their lowest in four-and-a-half months on Friday on worries earnings of financial firms would fall after the new budget proposals announced last week were implemented.

The main stock index ended 0.03 percent, or 1.96 points, weaker at 6,961.41, its lowest close since July 9, in thin trade.

"Market was very dull, not much of activities. Market was basically holding on with a marginal dip," said Yohan Samarakkody, head of research at SC Securities (Pvt) Ltd.

"People are cashing in ahead of the December festive season. It will remain in the red till the end of December and we might see proper activity after that."

Rating agency Fitch said on Tuesday that Sri Lanka's 2016 budget provides no clear plan for fiscal consolidation over the medium term and the absence of such a framework will put more pressure on the fiscal deficit.

"Fitch believes there are risks to government being able to meet its fiscal deficit target, especially considering the trend in revenues in recent years," the rating agency said.

The government on Friday announced a raft of steps, including the removal of a 0.3 percent share transaction levy, to stimulate trading in the share market and increase liquidity.

Shares of conglomerate John Keells Holdings Plc fell 0.75 percent, while Ceylon Tobacco Company Plc dropped 0.55 percent.

Turnover was 428 million rupees ($2.99 million), its lowest since Nov. 3 and well below this year's daily average of 1.1 billion rupees.

Foreign investors were net sellers of 21 million rupees worth of shares, extending the year-to-date net foreign outflow to 3.8 billion rupees so far this year.

Fitch said on Monday that it maintained a negative outlook on the telecom sector based on uncertainty over proposals to increase taxes, which are likely to lower profitability and increase leverage, if implemented. 

($1 = 143.1500 Sri Lankan rupees) 

(Reporting by Ranga Sirilal; Editing by Subhranshu Sahu)

Treasury Bond Auctions held on 27 November 2015

Banks can overcome lease ban

By Ishara Gamage

Ceylon Finance Today: Sri Lankan bankers may find alternative ways to overcome their leasing restrictions, which was proposed in the 2016 budget, analysts said. "Instead of giving direct leases they can utilize similar services as Vehicle or personal loans," they said.

Speaking to Ceylon FT, Fitch Rating Country Head Maninda Wickramasinghe said that those proposals may dampen banks' profits, but it is good for the leasing industry.

"We are now studying the real outcome of these banks' leasing restrictions, most leasing companies now become finance companies", he added.

Meanwhile, Finance Ministry Secretary Dr.R.H.S. Samaratunga said that main purpose of that proposal was to develop the leasing industry as a separate industry.

"Like other industries, we must give incentives to the leasing industry to grow. What I feel is due to competition among its members, customers can apply for low rate leases," he said.

Samaratunga said most Sri Lankan banks use their low cost funds to give lucrative leases which give them large profit margins.

"We have to stop this culture and let banks focus on their core business", he said.

When asked whether banks' subsidiaries are allowed to do lease business, he said that they will issue a final circular after proper evaluation of the industry.

Budget 2016 proposed that banks should cease engaging in leasing business from 01 June 2016.

Analysts at Bartleet Religare Securities (BRS) said, "We believe this proposal would be a serious challenge not only to banks, but to the consumer as well.

Motor leasing in particular is preferred way to drive loan book growth due to (1) attractive yields, (2) asset backed, (3) active second hand market (4) good asset quality as domestic banks refrain providing facilities to the subprime market. "We believe almost all banks would see a serious volume impact from this policy decision, as the sector's median exposure to leasing stood at 8% by end September 2015. NTB, in particular would need a change in strategic direction as the bank's loan book concentration to leasing is as high as 24%," analysts said.

They noted that finance companies would be the clear winners/beneficiaries of this proposal, growing in both volumes and margins, although from a consumer's point of view, this will restrict access to low leasing advance rates, as banks generally quote low rates due to their access to low cost funds.
www.ceylontoday.lk

The Fortress

By Chanaka de Silva

A boutique hotel that is the epitome of luxury. The Fortress, a modern and luxury boutique resort with 53 rooms located on the Southern shores of Sri Lanka just 17 kms away from the historic city of Galle, and 2 kms away from the Koggala Airstrip, a convenient connection for Air Taxi services or private air transfer to and from the Colombo International Airport.

Styled after Galle's ancient Dutch Fort, blending in with the country's Dutch and Portuguese influences together with Sri Lankan motifs and indigenous furnishings that echo the historic days of old Ceylon. The Fortress features six distinct styles of guest rooms and residences. Each room has been designed with either private courtyards or balconies which commands a stunning sea or garden view. All rooms feature 7ft by 7ft super king beds, open plan bathrooms, world class entertainment systems with LCD screens and BOSE DVD players, and surround systems. The three conventional restaurants Pepper & Heat which offer everything from international and Sri Lankan cuisine to wood-fired pizzas, and Duo (Surf & Turf) for Fine Dining. The resorts Spa Naturel with Ayurveda Centre offers a range of international and ayurvedic therapies, beauty treatments.
www.ceylontoday.lk

Softlogic Finance continues growth trajectory

Softlogic Finance PLC continued its strong growth momentum in the first half of the 2015 recording remarkable growth across the board, including double digit improvements in many key indicators.

Within the six month period ending September 30,2015, on a year-on-year (YoY) basis, Softlogic Finance's total operating income grew by 18% to Rs. 992 million, while Profit Before Tax (PBT) surged 39% to Rs. 153 million and net profit by 36% to Rs. 125 million.

Customer deposits grew by 20% YoY to Rs. 12,989 million and loans and receivables was up 72% YoY to Rs. 11,003 million.

Many other key indicators too witnessed significant improvements. Net Operating Income for the period was Rs. 780 million, representing an expansion of 21% YoY. Total Assets grew by 6% to Rs. 20,475 million. Reflecting greater efficiency, the company's cost-to-income ratio too declined YoY from 59% to 58%.

Impairments for loans and receivables for the first half of 2015 stood at Rs. 212 million while Net Assets per Share as at September 30, 2015 was Rs. 39.

"Softlogic Finance takes great pride in this characteristically strong financial performance as it underscores our high growth trajectory, solid fundamentals and the prudence of our business strategy," Softlogic Finance Deputy Chairman, Harris Premaratne said. "Further, improvements have been achieved in many diverse key indicators reflecting the high-quality and sustainable nature of growth."

"These results are also particularly noteworthy considering that they have been achieved despite significant increase in our commitments to reward and further develop our staff, by incentivizing them to achieve strategic objectives and to retain high levels of productivity," he added.

www.dailynews.lk

Stock Exchange to get CCP from 2017

The Colombo Stock Exchange (CSE) has intensified its thrust towards the establishment of a Central Counter Party and guarantee settlement (CCP) of cash and delivery of securities for all secondary market transactions on the CSE.

CSE Chairman Vajira Kulatilleke said that this CPP would be managed as a separate institution but would be a 100% owned company of the CSE. He said that already the first two initiatives on this has been completed and the CCP should be fully operational be the end of next year.

“We will invest around Rs. 600 million for the project and have already consulted a British company to assist us.”

The proposed Clearing Company will act as a Central Counterparty to guarantee settlement of equity and corporate debt securities traded on the CSE to address a key risk prevalent in the Colombo Stock Market.

He said that one of the biggest advantages of the system will be that it will align the CSE in par with all other top stock markets in the world.

Presently for equity securities the delivery of shares from the seller to the buyer occurs immediately upon execution of the share transaction while the fund settlement to the seller takes place only after 3 market days from the transaction date (T+3), thus exposing the seller to a 3 day settlement risk.

“CCP was discussed for a long time it never took off the ground. “I want to get this up and running before the end of my tenure which will bring CSE closer to its goal of achieving a world class status.’

“This is a ground breaking initiative launched with the approval of the Securities and Exchange Commission of Sri Lanka (SEC)

A CCP system has been identified and recommended by International Organization of Securities Commissions (IOSCO) as the best practice to adhere for clearing and settlement.

CSE CEO Rajeeva Bandaranaike said the consultants selected for the project are BTA Consulting (BTA) of the United Kingdom who are providing Consultancy and Project Management services to set up the Clearing House. BTA Consulting is a UK based consultancy firm specializing in capital market related assignments globally having specialists with exposure to most global capital markets.

He said that one of the other advantages would be that the CSC would be able to launch several other derivative products to attract more foreign buyers. “The CCP system will bring the CSE closer to its goal of achieving a world class status. In addition with the CCP in place even regional listed companies could invest in Sri Lanka helping Sri Lanka to claim itself as a regional financial hub.” The current Settlement Guarantee Fund set up in 1998 with a capital of Rs. 250 has now grown to Rs. 750 million will be used as guarantee for the proposed CCP.

www.dailynews.lk

BoC 9-month pre-tax profit up 11% to Rs. 16.6 b

Bank of Ceylon has reported Rs. 16.6 billion Profit Before Tax (PBT) for the nine months ended 30 September 2015. On a YoY basis PBT showed 11% growth. Profit After Tax (PAT) stood at Rs. 12.3 billion with a growth 10%.

The BoC Group which comprises 10 Subsidiaries and five Associate companies has reported Rs. 16.5 billion PBT with 8% growth while reporting Rs. 12.2 billion PAT with an 8% increase over last year. The Bank represents 97% of the Group’s total assets and is the main contributor to the Group’s performance.

Net Interest Income (NII) which contributes a major portion to the total operating income amounted to Rs. 35.5 billion and shows a 42% increase. This significant growth of NII has been resulted through higher interest income complemented by 8% reduction in interest expense,showing the Bank’s ability to manage the deposit mix efficiently. Consequent to improvement in NII, Net Interest Margin (NIM) improved from 2.7% to 3.4% YoY basis.

Other operating income also increased by 80% YoY basis largely due to increase in foreign exchange gains resulted through rupee depreciation against the US dollarduring the period under review. Increase of19% in personnel expenses has been compensated by a 14% dip in other expenses, causing a mere 5% increase of total operating expenses.

BoC ranked as the ‘Strongest Bank by Balance Sheet’ in the ‘Asian Banker 500’ (AB 500) competition conducted by Asian Bankers inOctober 2015. AB 500 Strongest Banks by Balance Sheet Ranking is the most comprehensive annual evaluation which captures the quality and sustainability of the balance sheet of banks in the region.

Maintaining its strength further, the Bank has been able to achieve a Rs.1.5 trillion asset baseat the end of 3Q 2015, recording 12% growth comparing to the previous year end.The gross loan portfolio has gone up by Rs.102 billion to Rs.880 billion,indicating 13% increase from the end of the previous year.

Leases,term loans, overdrafts, loans under schemes and personal loans were the major contributors to the loan growth while compensating for the plunge in the pawning portfolio, which was impacted by gold prices.Maintaining prudential measures accumulated impairment provision of Rs. 44.9 billion has been created in terms of impaired loans, amounting to 5% of gross loans.

The investment portfolio also showed an upward movement due to increased investment and treasury activities. As at end September 2015 deposits amounted to Rs. 998 billion which is close to the target of a Rs.1 trillion deposits base and accounted for 71% of the Bank’s total liabilities. The Bank’s deposit base has increased by 7% from the previous year end under a favourable mix of CASA (current and savings account to total deposits) 46.1% with an improvement of 290 bps.

The Bank’s Return on Average Assets (ROAA) ratio stood at 1.6% and Return on Average Equity (ROAE) ratio stood at 20.8%.Through effective cost management the Bank has been able to achieve 42.4% cost to income ratio which is a significant improvement from 48.7% stood in the period end of the comparative year.

The Bank managed to maintain better trade-off between liquidity and interest earning assets by maintaining domestic liquid asset ratio of 26.0% and off-shore liquid asset ratio of 31.3% as of endSeptember 2015,standing well above the Central Bank’s required benchmark of 20%. Capital Adequacy Ratio (CAR) which is a key regulatory ratio for banks has been maintained above the regulatory levels and Tier I capital ratio stood at 8.4% and Tier II at 11.8%.

Further the Bank expects an increase in its Tier II capital ratio with the issuance of Rs.8 billion debentures in mid-October this year. During the nine months period of this year BoC has created Rs.10.4 billion value to the Government in terms of taxes and dividend.

Fitch Ratings Lanka and ICRA Lanka havereaffirmedthe Bank’s Long-Term Issuer Default Rating (IDR) as “BB-”, National Long Term Rating as “AA+ (lka)”Stable Outlook and “(SL) AAA” with Stable Outlook respectively. Further, international rating body Moody’s reaffirmed the Bank’s rating as “B1”. 

The Bank is executing many process changes this year with a view to position the Bank in the modern era by delivering the best to customers.
www.ft.lk