Monetary Policy Review – February 2016 - Policy rates increased

Broad money (M2b) continued to grow at a high pace, recording a growth of 17.8 per cent (year-on-year) in December 2015 compared to 13.4 per cent in December 2014. The year-on-year growth of credit granted to the private sector by commercial banks accelerated during the year, with a growth of 25.1 per cent in December 2015 in comparison to 8.8 per cent in December 2014. In absolute terms, the expansion in private sector credit during 2015 amounted to Rs. 691.4 billion compared to Rs. 223.9 billion in 2014. 

The Colombo Consumers’ Price Index (CCPI, 2006/2007=100) based core inflation continued its increasing trend reaching 4.6 per cent in January 2016, on a year-on-year basis, from 0.8 per cent recorded in February 2015. Headline inflation, as measured by the year-on-year change in CCPI decelerated to 0.9 per cent in January 2016, mainly reflecting the impact of low international commodity prices, broadly favourable domestic supply conditions as well as the relatively high base in January 2015. Year-on-year headline inflation based on the National Consumer Price Index (NCPI, 2013=100) was at 4.2 per cent in December 2015. 

The Central Bank’s decision to increase the Statutory Reserve Ratio (SRR) with effect from 16 January 2016 has permanently absorbed a part of excess rupee liquidity from the domestic money market. The decline in excess liquidity also resulted in market interest rates adjusting upwards. In effect, most market rates have shown adjustments towards the levels observed prior to the reduction in policy interest rates in April 2015.

Considering these developments, the Monetary Board, at its meeting held on 19 February 2016, observed that, in spite of the recent policy measures taken by the Central Bank and some upward adjustments observed in market interest rates, certain risks to macroeconomic stability continue. In particular, the Monetary Board was of the view that the excessive growth of broad money fuelled by domestic credit expansion in the midst of continued upward trend in underlying inflation requires pre-emptive policy measures in order to contain further build-up of demand driven inflationary pressures. Accordingly, the Monetary Board decided to increase the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank by 50 basis points each, to 6.50 per cent and 8.00 per cent, respectively, effective from the close of business on 19 February 2016.

Sri Lanka shares end 9-day fall; turnover surges

(Reuters) - Sri Lankan shares closed higher on Friday, ending a nine-session losing streak, with turnover rising to an over-three-week high on block deals in Textured Jersey Lanka.

However, analysts said rising domestic interest rates and global economic worries still remain the main risks.

The benchmark index CSE closed 0.67 percent higher at 6,250.78, edging up from its lowest close since April 29, 2014 hit on Thursday. It has fallen 2.87 percent in the last nine sessions through Thursday.

"The block deal in Textured Jersey translated into positive sentiment," said Dimantha Mathew, research manager at First Capital Equities (Pvt) Ltd.

"With the deal, we saw some buying coming into the market. But this will be a temporary measure and overall direction in the medium term is still downward."

The key index has fallen around 10 percent this year through Thursday, amid a rise in market interest rates.

Yields on 91-day t-bills rose 13 basis points at a weekly auction on Wednesday to a more-than-two-year high, signalling a further rise in market interest rates. was 1.56 billion rupees ($10.83 million), well above this year's daily average of 731.8 million rupees and highest since Feb 2, on block deals in Textured Jersey Lanka.

Textured Jersey Lanka, which accounted for 70.1 percent of the day's turnover, ended up 1.95 percent at 31.40 rupees.

Foreign investors were net sellers of 1.09 billion rupees worth of shares on Friday, extending the net foreign outflow to 1.37 billion rupees worth of shares so far this year.

Shares in Ceylon Tobacco Company Plc CTC climbed 2 percent and Nestle Lanka Plc NEST rose 1.31 percent while Dialog Axiata Plc DIAL gained 1.01 percent.

The markets will be closed on Monday for a Buddhist religious holiday. 

($1 = 144.0000 Sri Lankan rupees)

Move to reduce broking firms

By Ishara Gamage

Ceylon Finance Today: Securities and Exchange Commission's (SEC's) move to increase the stock brokering sector's minimum capital adequacy ratio will encourage sector consolidation, CSE CEO Rajeeva Bandaranaike said.

He expected this to result in the number of existing stock broking companies to come down to 15, from the current number of 29.

"Prevailing low turnover market conditions definitely dampen stock broker revenues, so we must always encourage sector consolidation", he said, on the sidelines of a market opening ceremony yesterday (18).

Bandaranaike said that the market is expecting some big deals like the selling of government stakes in Lanka Hospitals and Hilton Hotel.

"According to government sources it will happen within next few months", he remarked.
Meanwhile, Orient Finance PLC, rang the opening bell to start trading at the Colombo Stock Exchange (CSE) yesterday.

Speaking at the event, Orient Finance PLC, Chairman Dr. D. C. Jayasuriya (PC) said, "Stock markets worldwide are structured around responsible investment, due compliance and good governance. They were planning to add five more branches to its existing 25 branch network and expand its core business in leasing and hire purchase areas.

These are values which Orient Finance upholds." Commenting on the IPO he said, "I would like to thank individual and institutional investors for the trust they have placed in the company." Jayasuriya also expressed his appreciation to the CSE and Securities and Exchange Commission (SEC) for the assistance provided through the IPO process. CSE Chairman Vajira Kulatilaka speaking at the event said, "We welcome Orient Finance to the list of prestigious companies that are listed on the CSE. The listing is a proud moment for the management, directors and investment bankers who were involved in the process." He further said, "We are pleased to see an increasing number of companies showing an interest in listing on the CSE, especially considering the recent initiatives we have implemented to develop the stock exchange and give it world-class status."

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Sri Lanka’s Commercial Bank to raise Rs7bn in debentures

(LBO) – Sri Lanka’s Commercial Bank said it was planning to raise as much as 7 billion rupees from the sale of debentures which will be quoted on the Colombo Stock Exchange.

The bank said in stock exchange filing that it wanted to sell 50 million debentures of 100 rupees each.

But it would offer another 20 million debentures at the discretion of the bank if the initial offer was oversubscribed.

Subscription list will be open on 29 February 2016.

Pan Asia Bank crosses Rs.1 bn net profit

Pan Asia Banking Corporation PLC saw its post tax profit for the year ended December 31, 2015 (FY'15) increasing by 151% to surpass the key milestone of achieving a billion rupee profit.

The bank closed the year with a post tax profit of Rs.1.04 billion well supported by the above average growth in gross loans and advances, higher margins and improved efficiency.

The earnings per share has risen to Rs. 3.53 from Rs.1.41 a year ago. Meanwhile for the quarter ended December 31, 2015 (4Q'15) the bank has increased its after tax profit by as much as 110% to Rs. 289.6 million. The bank has grown its net loans and receivables by as much as 40% or Rs. 23.9 billion during the year to Rs.84.2 billion. This is by far the highest growth in net loans and advances recorded by a licensed commercial bank in 2015.

This is also above the economy's private sector credit growth of 24% for the first eleven months.

The bank's Director and Chief Executive Officer Dimantha Seneviratne said the bank was able to record this exceptional performance due to proactive decisions and effective execution of strategies capitalising on the opportunities in the macro-economy while managing the risks.

"This performance reflects the immense potential of Pan Asia Bank and our contribution to the economy where we have disbursed our funds in to all sectors and regions in the country. Our Retail, SME and Corporate segments reached out to all areas of the country uplifting many industries and living standards of the people whilst creating financial inclusion," he added. The bank has made tremendous progress in its core-banking performance as its fourth quarter Net Interest Income (NII) has risen by 23% to Rs.1.04 billion and the entire year's NII increased by 45% to Rs.3.96 billion..

Despite the pressure on banking sector margins, Pan Asia Bank has expanded its net interest margin to 4.34% from 3.82% in December 2014 due to prudent re-pricing and proactive assets and liability management.

www.dailynews.lk

Softlogic Finance posts Rs 102 mn profit in Q3

Softlogic Finance PLC has reported remarkable growth and improvements in many key indicators in the third quarter as well as the first nine months of the 2015/16 financial year.

Softlogic Finance has boosted net profit by 48.47% year-on-year (YoY), to Rs. 227.18 million as well as Profit Before Tax by 50.04% YoY to Rs. 260.05 million. The growth was even more commendable considering the figures for the third quarter of the 2015/16 financial year (3QFY15/16) with Profit Before Tax increasing by an outstanding 70.06% YoY to Rs. 106.87 million and net profit by 66.98% YoY, to Rs. 102.01 million.

Despite decrease in Interest Income year-on-year as a result of the low interest environment which prevailed during 9MFY15/16, net operating income rose by an impressive 15.16% YoY to Rs. 1,167.31 million, reflecting the company's strong fundamentals and resilience, as well as prudent strategic shift particularly in its assets portfolio.

Total assets as December 31, 2015 grew by a significant 11.56% YoY to Rs. 21,692.40 million, surpassing the growth of Liabilities by 9.3% YoY to Rs. 19,630.42 million.

The company added 11 branches to its network during the last nine months of the current financial year and at present has a network of 27 branches spread across the island.Softlogic Finance is part of the Softlogic Group.
www.dailynews.lk

Stock market set to recover this year

Shirajiv Sirimane

The negative sentiments in the market is expected to recover mid this year said Colombo Stock Exchange CEO Rajeeva Bandaranaike said. He said this negative trend is continuing all over the world and in fact Sri Lanka's stock market is doing better than some of the other countries. He said that though the lower oil prices have a positive impact for the economy, the depreciating rupee (against the dollar) and the high balance of payments has a negative impact on the stock market. "This is a global cycle which was triggered by China."

The Colombo Stock Exchange is also looking to launch an education portal targeting youth next month.

The CSE will also participate in the Sri Lanka Investment Summit which will be held in Singapore on March 15 2016.The event has already attracted over 200 registrations.

Standard Chartered Bank is the lead sponsor of the Sri Lanka Investment Summit which is presented by FinanceAsia. It will be positioned to showcase and highlight the country to potential investors from across the globe. 

www.dailynews.lk