Sri Lanka’s biggest bank reports 43% growth in net 2016 profit

Bank of Ceylon (BoC) has reported a record-breaking pre-tax profit of Rs.31.2 billion for the year ending December 31, 2016, while post-tax profit stood at Rs.24.8 billion. The profit for 2016 at Sri Lanka’s biggest bank is a sharp 43 per cent rise from 2015.

Total operating expenses increased by 7 per cent in line with the business expansion. However depicting the BoC’s effective cost benefit management,cost to income ratio came down to 43 per cent from 45 per cent compared to the previous year, the premier bank said in a media release on Monday.

Net operating income for the period reflected an improvement of 16 per cent mainly backed by the increase of 17 per cent in net interest income and 59 per cent increase in other operating income.

Reduction of 26 per cent in total impairment charges through a reversal in provision following improved Non Performing Loans (NPLs) has also complemented the increase in net operating income. In 2016 many policy rates were changed affecting the market interest rate to move upward. In January

2016 Statutory Reserve Ratio (SRR) was increased by 150 bps to 7.5 per cent and Standing Lending Facility Ratio (SLFR) and Standing Deposit Facility Ratio (SDFR) also increased during the year up to 8.5 per cent and 7.0 per cent.

“Whilst, the increasing trend in market interest rates has resulted in an increase in both interest income and expenses, the BoC has managed to maintain its interest margin at the previous year level of 3.3 per cent through its effective management of cost of funding. Interest income earned through investment activities particularly in Sri Lanka Development Bonds and Treasury Bonds also contributed towards the growth in the net interest income,” the release added.

“Despite the decline in net fee and commission income by 8 per cent compared to the previous year in the light of subdued performance experienced across the export industry, 59 per cent impressive growth in other operating income showcased the BoC’s ability of making its targets a reality through various avenues among challenges. This operating income includes Rs.3.1 billion capital gain from disposal of investment too,” it added.

The bank reported Rs.1 trillion in loans and advances base, with total assets reaching Rs.1.7 trillion as of end 2016 .

The deposit base accounted for 80 per cent of the BoC’s liabilities as at end 2016 and grew by 16 percent to Rs.1.3 trillion from end December 2015.

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CSE new rules on errant firms of public float in June

By Duruthu Edirimuni Chandrasekera

The Colombo Stock Exchange (CSE) will issue directions on non-compliance pertaining to public float by June, officials said.

The Securities and Exchange Commission (SEC) has now sanctioned the minimum public float rules that represent a portion of shares of a listed firm that are in the hands of public investors as opposed to shares owned by the company’s institutional shareholders and will enforce penalties for those who don’t comply, they said.

Early last year, 30 – 40 listed firms requested more time to comply with these rules. Also certain listed firms which don’t fall into SEC’s minimum public flat requirements announced their intention to get off the CSE. The officials said that the penalties on non-compliant firms will also kick in by June. They declined to say what they were.

The rationale for a minimum float is that a sizeable public float is a necessity to ensure a market is fair, orderly and efficient, a CSE official said. The introduction of a minimum public float as a continuous listing requirement is considered by all regulators in order to promote liquidity and ensure a better price discovery mechanism, he added. “It’s an established fact that greater the public float less is the potential for market ” he said. The time duration for compliance will end in June.

Research by the SEC found that as at June 2011, 35 per cent of the listed firms in the Main Board had a public float below 20 per cent while 12 per cent had a public float below 10 per cent. Data showed that 36 per cent of the Diri Savi Board companies had a percentage below 10 per cent.

Stockbrokers want brokerage increased,CAR relaxed 

Stockbrokers who met with Treasury officials late last month to appraise the Finance Ministry of their plight had urged the authorities to increase their brokerage on trades amongst other issues.

The brokers at this meeting had said that the Colombo Stock Exchange (CSE) is now facing an unfavourable situation due to the continued slump. The main All Share Price Index peaked in August 2014 after breaking past the 7,000 point mark, they had said noting that it has steadily declined since then, due to many uncertainties.

While the brokers are faced with several serious issues especially operational and their cash-flows are strapped, they added that some companies are mulling pay cuts from this month. The SEC’s new rules in capital adequacy which direct the implementation of a risk based Capital Adequacy Requirement (CAR) of 1.2 times the risk requirement of stock brokers subject to a minimum liquid capital requirement of Rs. 35 million was also criticised. 

Treasury officials said that the regulator had pointed out that certain broking firms had ‘minted’ cash during the 2010 – 2012 era, but they had extracted cash from their main broking firm to start ‘unrelated’ businesses. They had said that while it’s their onus to carry out their own business, it was also their responsibility to retain buffers for the core business. Analysts say while this argument is debatable, the onus also falls on the trading firms to cut costs and manage their businesses.

The current rules on minimum Net Capital applicable to stockbroker firms do not address the different risks these firms are exposed to, one Treasury official said adding that the SEC had noted that due the foregoing limitations of the then rules and in keeping with international standards, a dire need to establish stock brokers a risk-based capital adequacy requirement was felt.

Having considered the capitalisation of stockbroker firms, their current activities and CAR regimes implemented in regional markets, the CSE together with the SEC developed the methodology for the rules, the SEC had said.This meeting followed a discussion over the prevailing crisis situation which had been held between the heads of stock broking companies and CSE authorities on March 27.

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Foreign funds buy into Singer SL

Five foreign funds have bought consumer durables retailer Singer Sri Lanka PLC’s shares that its parent, Retail Holdings NV sold last month as part of the latter’s global strategy.

HSBC International NOM LTD – Morgan Stanley and Co. LLC-RWC FR, BNYMSANV RE-CF Ruffer Investment Funds: CF Ruffer, CLSA Global Markets PTE LTD, Pemberton Asian Opportunities Fund and HSBC International NOM LTD-SSBT- Russell Investments Institute bought 6.04 million shares which translates to some 86 per cent in Singer’s local operation, analysts said. Ruffer Investment Fund and Pemberton Asian Opportunities had invested in the prior placement of shares and had increased their investment with this placement.

The company sold its entire 70.28 per cent equity stake in subsidiary, Singer Pakistan Ltd last year and in the previous year sold a 40 per cent stake in Singer Thailand to Thai investors.

The shares traded in parcels of Rs.5 million, Rs.0.8 million and 0.24 million fetching Rs. 690 million for the seller. Singer Sri Lanka’s parent was widely expected to exit or sell-down its stake following the sale of a Pakistan unit. - DE

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Unit trusts to be given some tax concessions

By Duruthu Edirimuni Chandrasekera

Unit Trusts are confident of some tax concessions following a meeting that the Securities and Exchange Commission (SEC) and the Colombo Stock Exchange (CSE) had with the Treasury recently, sources said.

Both SEC and CSE senior officials had met with the Treasury and submitted a paper on the related tax concessions that they proposed. The Treasury has forwarded these representations to the Prime Minister, sources said. The Budget 2017 proposes a withholding tax of 5 per cent for individuals investing in bank deposits while unit trusts would be subject to a 14 per cent withholding tax. Similar tax differentials proposed at various levels will create an unequal playing field and ultimately could lead to the decline of an industry that is established globally to improve investment opportunities to retail investors and enhance financial market efficiency, the sources added. “The Treasury has now recognised these issues,” an industry player said.

Representations were made by the Unit Trust Association to the Treasury earlier which said that the impact of the new taxes could be quantified as at around Rs. 120 billion in likely withdrawals from the unit trust funds leading to a run on the funds which will ultimately have a cascading effect throughout the banking and capital market.

Over the years corporates who were using unit trust investments to forgo taxes on investment income and the Treasury was concerned about this, sources said. They said that concessions will be granted targeting individuals.

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