The licensed finance companies (LFCs) and specialised leasing companies (SLCs) sector showed a sharp 26.4 per cent growth in its total assets to Rs. 853 billion at FY16 with improved assets quality reflected in the NPL ration. Analysts said that its growth of assets was largely contributed by the increase in borrowing by 29 per cent YoY and deposits by 17 per cent YoY.
Funds mobilised were largely utilised in granting loans and advances. Throughout FY16 this sector experienced a strong demand for credit on vehicle leasing and other secured loans.
“There was a steady growth in deposits as the sector continued to attract depositors due to relatively high deposit rates offered by LFCs compared to banks. Total deposits grew by 17.22 per cent to Rs. 490 billion in FY16. The deposit mobilisations mainly through fixed deposits accounting for 95 per cent of the total deposits whilst a slight increase was shown in the savings deposit base. The capital elements of the sector increased by 8.44 per cent to Rs. 131.5 billion at end FY16, mainly on account of internally generated profits made during the year,” Atchuthan Srirangan, Senior Research Analyst First Capital Equities told the Business Times.
LFCs and SLCs sector total assets expanded by 7.51 per cent to Rs. 1,158 billion in the first six months of FY17. The increased appetite for credit at the grass-root level of the economy enabled the finance sector to grow their business volumes and increase profitability, analysts say. Increase in assets was largely funded through borrowings, Mr. Srirangan said, adding that 42 per cent of the assets increase during the period was funded through borrowings. The sector borrowings increased by 10.94 to Rs. 416.5 billion in the 6MFY17. In contrast, the deposits grew by 4.8 billion to Rs. 512.7 billion in 6MFY17.
Analysts say that private sector credit growth is to slow down against 2015 and 2016 but remain moderate at 12 per cent-14 per cent while finance sector credit which has always grown at a faster rate and therefore is likely to remain at 16 per cent -18 per cent compared to 27 per cent growth in 2016.Given the monetary tightening measures and the currency depreciation vehicle leasing segment is likely to register a slowdown while loans and advances segment record the bulk of the growth. IMF forecast for private sector credit growth stands at 14 per cent – 15 per cent levels between 2017E-2020E.
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Two stockbrokers are under fire for having failed to fulfil the newly introduced risk-based capital requirements by the Colombo Stock Exchange (CSE), even after an extended timeline was given to them, market sources said.
As a result, their share buying operations have been curtailed. In March, three stockbrokers were shown the ‘red light’ to comply with the stipulated requirement by a month and only one had complied, leaving these two to comply, the sources added.
The purchasing operations of these two stockbrokers have been suspended until they bridge the gap in their capital adequacy levels, they said noting that it will be difficult for them to sustain their operations. “They are in a tough situation,” a source told the Business Times.
The Securities and Exchange Commission’s (SEC) new rules in capital adequacy direct the implementation of a risk based Capital Adequacy Requirement (CAR) of 1.2 times the risk requirement of stockbrokers subject to a minimum liquid capital requirement of Rs. 35 million.
The earlier rules on minimum Net Capital applicable to stockbrokers firms do not address the different risks these firms are exposed to, the SEC says, adding 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. According to them, CAR is to ensure that stock brokering firms are strong enough to withstand any shocks and ensure a sound capital market.
The International Organisation of Securities Commissions (IOSCO), which is the global standard setter for the securities sector sets out Principles of securities regulation, in its regulatory Principle 30 states that “There should be initial and ongoing capital and other prudential requirements for market intermediaries that reflect the risks that the intermediaries undertake.”
Having considered the capitalisation of stockbrokers 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 has said.
The CAR requirement will meet IOSCO Principle 30 by defining and enabling the monitoring of risk on a daily basis and linking the capital required to be maintained to address risk. Furthermore, the implementation of CAR will enable the SEC and the CSE to set up trigger points and prompt brokers to proactively monitor and manage their CAR before it breaches the minimum threshold. CAR will also aid in the development a risk based supervision framework.
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Raising equity capital has been on cards for a considerable time for commercial banks with the Central Bank (CB) issuing the new directions in December last year, but smaller banks will be challenged, analysts say.
Banks such as Union Bank, Pan Asia and Nation’s Trust Bank (NTB) haven’t cleared these thresholds. Out of these three, NTB is likely to reach the limits with this year’s profits, the analysts say. The other two will need to bring capital in.Commercial banks with an asset base over Rs. 500 billion are required to maintain certain capital levels. They have to maintain a minimum tier 1 ratio of 7.75 per cent, 8.875 per cent and 10 per cent by July 2017, January 2018 and January 2019 respectively. This is stipulated as per Basel III requirements which are a comprehensive set of reform measures, developed by the Basel Committee on banking supervision, to strengthen the regulation, supervision and risk management of the banking sector. Also the CB has increased the minimum capital requirement of banks to Rs. 20 billion, from a current Rs. 10 billion, by next year.
Analysts said that with this mandatory capital, financial institutions are required to hold in addition to other minimum capital requirements, the smaller banks will go for rights issues or debentures this year. Analysts say that while the top five hanks (Commercial, HNB, Sampath, Seylan and NDB) have cleared these thresholds. HNB last month announced that it was issuing up to 70,082,228 new ordinary shares comprising 55,995,792 ordinary voting shares and 14,086,436 ordinary non-voting shares by way of a rights.
The purpose of the share issue is to strengthen the capital base/balance sheet of the bank and to support the overall business growth of the bank, it said in an announcement to the Colombo Stock Exchange.
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By Duruthu Edirimuni Chandrasekera
Foreign inflows mainly from Australia have led to a marked improvement in trading during April following the recently-conducted ‘Invest Sri Lanka’ investor forums in Australia, the Colombo Stock Exchange (CSE) says.
Australian inflows have contributed a total of Rs. 487.62 million since the events in Australia. The CSE in April saw keen interest among foreign institutional investors where net foreign inflow as at April 23 was Rs. 14.3 billion year-to-date in 2017, up from Rs. 383.5 million in 2016.
Overall foreign investor activity has seen a rise in 2017, with a net foreign inflow of Rs. 16.5 billion, a vast improvement compared to previous years, which recorded an inflow of Rs. 383.5 in 2016, the CSE said in a statement.
Consistent foreign inflows have been a standout feature of the performance of the market in recent weeks, with net foreign inflows for 21 consecutive trading days by the end of trading on Friday, April 21 barring the first week of early May. This slump in foreign buying this week analysts say is due to profit taking and is an expected trend.
The key is to work out which funds are actually investing in the CSE these days, an analyst said noting that if its larger emerging markets funds, the Indian sub-continent funds or frontier funds that are buying, then the CSE is really up on the deal.
CSE officials said that those who’re investing are not ‘new’ funds, but they were inactive for the ‘longest’ time.”They have been inactive, but they were impressed after the Australian roadshows,” a CSE official told the Business Times.
Dilshan Wirasekara, CEO First Capital noted that stocks offered good value, but some stocks are underpriced when compared to PE multiples regionally.
Commenting on the development, Head of Market Development, CSE Niroshan Wijesundere stated, “We are pleased to see the events in Australia having a positive effect on the turnover flowing in from the country. This is consistent with a trend that we have experienced with foreign investor forums conducted in the past, where these events almost immediately rejuvenate the interest in the Sri Lankan capital market. The presence of the stock brokers who travelled with the delegation to Australia also played a vital role in following up and securing such investments.”
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Mobitel (Pvt) Ltd, Sri Lanka’s national mobile service provider, will operate as an independent entity exiting from Sri Lanka Telecom after functioning as its subsidiary for more than 14 years.
The company will be listed in the Colombo Stock Exchange (CSE) this year with the aim of broad-basing the ownership of Mobitel which is a fully owned subsidiary of Sri Lanka Telecom, official sources disclosed. Details of the listing and other steps are yet to be finalised.
This decision of the future of Mobitel was conveyed to the Cabinet Committee on Economic Management (CCEM) recently.
The government will exit partially or fully from non-strategic investment in Mobitel and several other institutions including Lanka Hospitals, Hotel Developers PLC (Colombo Hilton), Hyatt Residencies, Waters Edge and Grand Oriental Hotel.
The government’s policy in state owned enterprises will be driven by the strategic placement of its investments in relation to the economy, a note submitted to the CCEM revealed.
According to the note, such action will allow the government to raise at least US$1 billion to settle the existing uneconomical, questionable and high cost debt that the present government inherited from the previous regime.
When contacted over the phone for further clarification, Minister of Telecommunication and Digital Infrastructure Harin Fernando told the Business Times, that the government has decided to tackle over-capacity in Sri Lanka’s telecommunication industry while making Mobitel a strong operator by broad-basing the ownership.
The government has decided to separate Mobitel from SLT as it is keen to streamline its portfolio of investments, he said.
The overcrowded mobile phone industry remains the key medium-term risk to telecom operators in the country, he said, adding that Mobitel would be allowed to operate independently.
This company, a subsidiary of SLT is managed by a separate administration even at present and operates on its own, he pointed out emphasising that the proposal to allow it to run as an independent entity after listing in the CSE was also included in the 2016 budget.
Mobitel accounted for over 45 per cent of SLT Group revenues and it is the highest income earner among SLT’s eight subsidiaries.
Mobitel, which started operations in 1993, became a wholly owned subsidiary of SLT in October 2O02.
The company is currently in the midst of expanding its network of base stations to 5300 nationwide, from the present level of 3500, an endeavour that will see its coverage expand to 100 per cent of the population. -(Bandula)
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The Central Bank (CB) is in the process of seeking Monetary Board approval to launch a new monthly public auction system for Treasury bonds with an underwriting facility.
The CB is also planning an overhaul of regulatory and supervisory system with rules and principles to promote market discipline, as part of measures to improve transparency in the Government securities market.
A media release from the CB this week said it had mandated primary dealers and licensed banks to use the Bloomberg electronic bond trading platform to trade repurchase transactions (repos) in government securities.
This means dealers are required to quote and trade repos between them in the trading platform, and report in the trading platform repos carried out over-the-counter with investors, each of Rs. 100 million or above within 30 minutes of the completion of each repo transaction.
“Accordingly, the system testing and monitoring have now been completed. The CB will release the daily summary trade information of repo volumes and yield rates based on standardised tenures such as overnight, one week and two weeks shortly for the information of the market participants,” the release said.
This is the third stage of Bloomberg trading platform designed for trade of government securities in Sri Lanka. This trading platform first commenced on August 1, 2016 for outright trade of government securities of Rs. 50 million or above carried out through primary dealers which was extended to licensed banks with effect from September 15, 2016.
“Accordingly, such outright trades reported up to March 31, 2017 amount to Rs. 1,128 billion of 6,763 transactions,” the release said adding that the transparency brought to the market will improve the price discovery and increase the market liquidity and outreach which will reduce the cost of borrowing in the medium term.
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