Sri Lanka’s Sanasa Bank to set up dedicated SME centres, branches

ECONOMYNEXT – Sri Lanka’s Sanasa Development Bank (SDB) plans to set up dedicated centres and branches to handle small business lending as part of a renewed focus on the sector.

SDB aims to transition from a largely micro finance focus to a broader SME (small and medium enterprise) corporate focus, its General Manager and chief executive Nimal C. Hapuarachchi said.

Planned small and medium enterprise (SME) lending activities include setting up three dedicated SME centres to handle small businesses of all nine regions, the bank’s 2016 annual report said.

It will also set up dedicated SME branches in areas where small and medium enterprises have strong potential.

SDB said it has realigned the allocation of resources to three main segments, SMEs, retail and its founder base of co-operatives.

Retail-related positions now account for larger shares of SDB’s balance sheet, and it helps the bank to grow its asset base at a rate well above industry averages, the bank’s annual report said.

SDB’s net profit for 2016 fell by 44% to Rs 404 million from the year before.

This was partly because of a deliberate effort to slow down growth of assets, which had doubled in 2014 and 2015 creating severe pressure on the capital base and causing an urgent need to infuse new capital.

“The bank deliberately slowed down assets growth until such time the right investors are identified, to ensure that the bank’s Statutory Capital Ratios are maintained to sustain stability,” Hapuarachchi said.

“This deliberate slowing down of the asset growth has resulted in the inevitable negative impact on the financial performance in 2016.

”Moreover, rising interest rates on deposits in a highly illiquid market in which all financial institutions were competing, had an impact on the cost of borrowings. The inevitable outcome was a drop in the income in a scenario where asset growth has been deliberately slowed down,” Hapuarachchi said.
.
SDB has signed deals with FMO (the Netherlands Development Finance Company), the Dutch development bank and the SBI-FMO Emerging Asia Financial Sector Fund to strengthen its capital base and lending portfolio.

Sri Lanka 2027 sovereign bond rated 'B1' by Moody's

ECONOMYNEXT - Moody's Investors' Service has given a 'B1' rating with a negative outlook for Sri Lanka's 10-year sovereign bond sold last week which will mature in 2027.

"Sri Lanka's B1 rating balances the economy's robust growth potential and higher income levels than similarly rated sovereigns against a high government debt burden, low debt affordability, and reliance on external borrowing combined with relatively low foreign exchange reserves," the rating agency said.

"Signs that the fiscal consolidation measures are ineffective or that the authorities' commitment towards fiscal consolidation is wavering would point to a higher debt burden for longer and put negative pressure on the rating.

"In particular, if such developments were accompanied by a marked fall in foreign exchange reserves and lack of market access, a downgrade of the rating would be possible."

The full statement is reproduced below:

Moody's assigns B1 rating to Sri Lanka's global bond offering

New York, May 05, 2017 Moody's
Investors Service ("Moody's") has assigned a B1 rating to the Government of Sri Lanka's US dollar bond offering maturing in 2027. The outlook on the Government of Sri Lanka's issuer rating is negative.

RATINGS RATIONALE

Sri Lanka's B1 rating balances the economy's robust growth potential and higher income levels than similarly rated sovereigns against a high government debt burden, low debt affordability, and reliance on external borrowing combined with relatively low foreign exchange reserves.

The negative outlook on the rating is underpinned by: (1) Sri Lanka's persistently weak fiscal metrics, in an environment of subdued GDP growth, which could lead to renewed balance of payments pressure; and (2) the possibility that the effectiveness of the fiscal reforms envisaged by the government may be lower than we currently expect, which could further weaken fiscal and economic performance.

Signs that the fiscal consolidation measures are ineffective or that the authorities' commitment towards fiscal consolidation is wavering would point to a higher debt burden for longer and put negative pressure on the rating. In particular, if such developments were accompanied by a marked fall in foreign exchange reserves and lack of market access, a downgrade of the rating would be possible.

Conversely, evidence of effective reform implementation leading to significant and lasting improvements in tax collection would b positive. Such an improvement, coupled with reforms of macroeconomic policy that lead to more stable external financing conditions, would support a return of the rating outlook to stable.

This credit rating and any associated review or outlook has been assigned on an anticipated/subsequent basis. Please see the most recent credit rating announcement posted on the issuer's page on www.moodys.com, under the research tab, for related economic statistics included in rating announcements published after June 3, 2013.

Sri Lanka Treasuries yields fall

ECONOMYNEXT – Yields on Sri Lankan Treasury Bills fell at an auction Monday with the Public Debt Department of the Central Bank not offering the shortest tenor bills of three months.

The yield on the six month bills fell 10 basis points to 10.43% from last week while the yield on the one year bill fell 10 basis points to 10.73%, a statement said.

The public debt department got bids worth Rs77.7 billion and accepted bids worth Rs30.5 billion.

Sri Lankan shares extend gains ahead of cenbank rate call

Reuters: Sri Lankan shares extended gains into a third session on Monday, posting their highest close in nearly one year, with blue chips leading the rise ahead of the central bank's monetary policy rate announcement.

Volume was moderate as many investors were on the sidelines ahead of holidays. The financial markets will be closed on Wednesday and Thursday for Buddhist religious holidays.

With pressure on the rupee abating and yields for government securities easing, the central bank is likely to keep key interest rates steady at more than three-year highs at a policy meeting on Tuesday, a Reuters poll showed.

The Colombo stock index ended 0.4 percent firmer at 6,667.46, its highest close since May 18, 2016. It added 0.5 percent last week, its sixth straight weekly gain.

"It is really a short week and investors are not there," said Prashan Fernando, CEO at Acuity Stockbrokers.

"The whole week is going to see thin volume due to the holidays."

Turnover stood at 767.5 million rupees ($5.04 million), less than this year's daily average of 899 million rupees.

Foreign investors net bought shares worth 137.9 million rupees, extending their year-to-date investment in equities to 16.74 billion rupees.

They bought a net 14.25 billion rupees in the last 31 sessions, and out of these, the bourse saw net foreign buying in 30.

Reduction in t-bill yields, stable currency on expectation of inflows from foreign borrowing, an IMF statement on the disbursement of the third tranche of $1.5 billion loan, and lower-than-expected yield for a $1.5 billion sovereign bond last week have helped boost sentiment, analysts said., ,

Conglomerate John Keells Holdings Plc rose 0.5 percent, Hatton National Bank Plc ended 0.5 percent firmer, and Commercial Bank of Ceylon Plc climbed 0.3 percent. 

($1 = 152.1500 Sri Lankan rupees) 

(Reporting by Shihar Aneez and Ranga Sirilal; Editing by Subhranshu Sahu)

Nestlé posts Rs. 9.4 bn sales in Q1 amidst tough market conditions

Nestlé reported a sales revenue of Rs. 9.4 billion and profit of Rs. 0.9 billion for the first quarter ending 31 March 2017.

The Company’s results were impacted by an increase in Value Added Tax, and sluggish consumer demand aggravated by the prevailing drought, reported to be the worst in forty years. The drought has significantly affected fresh coconut crop, leading to an unprecedented increase in coconut prices.

“Severe drought leading to depressed consumer demand, and a significant increase in raw material costs, has made the start of this year particularly challenging. With an increasingly challenging business environment, we have put the necessary measures in place to enhance efficiency and offer more value to our consumers ” said Shivani Hegde, Nestlé Lanka Managing Director.

Nestlé recently initiated an investment of over Rs. 4.5 billion in a new manufacturing facility, to expand production capacity for its popular dairy and coconut based products.

Nestlé is Sri Lanka’s largest private sector collector of fresh milk, and one of the world’s largest exporters of coconut milk powder.

Supporting the livelihood of thousands of local farmers and their families, its payment to farmers for procuring these raw materials exceeded Rs. 6 billion in 2016 alone.

www.dailynews.lk

Sampath Bank surpasses Rs. 2 b mark in 1Q post-tax profit

Starting 2017 on a positive note, Sampath Bank has surpassed the Rs. 2 billion mark to achieve a post-tax profit of Rs. 2.3 billion for the quarter ended 31 March 2017.

This registered an impressive 34.6% growth in comparison to the profit after tax (PAT) of Rs. 1.7 billion recorded for 1Q 2016. Profit before tax (PBT) too grew by 36.4% YoY and reached Rs. 3.5 billion in 1Q 2017. The Sampath Group, which comprises Sampath Bank and four fully-owned subsidiary companies, has also posted a growth of 33.3% and 29.5% at the PBT and PAT levels respectively.

The bank achieved substantial growth in all key business pillars in the first quarter of 2017.

Net Interest Income (NII), which is the main source of income, representing more than 70% of the total operating income of the bank, recorded an increase of Rs. 1.7 billion (36.1%) during the period under review. Accordingly, the bank recorded Rs. 6.3 billion as NII for 1Q 2017, as against Rs. 4.7 billion recorded in the corresponding period of 2016.

This achievement was made possible by the robust growth recorded in the bank’s fund base, as indicated by the 4.4% (annualised 18%) growth in deposits and 6.5% (annualised 26%) growth in advances, coupled with the timely re-pricing of asset and liability products and other fund management strategies adopted by the bank.

Net fee and commission income, which largely comprises credit, trade, card and electronic channel-related fees, increased to Rs. 1.9 billion in the quarter under review, as opposed to Rs. 1.5 billion recorded in the corresponding period of 2016.

This important income source too has posted a notable YoY growth of 32.5%, leveraging on the credit and trade-related segments, expansion of the credit card operations and the successful launch of innovative value additions through electronic channel offerings.

The bank’s other operating income recorded a marginal increase of 7.1% during the period under review, in comparison to the corresponding period. The increase in dividend income from subsidiaries and the increase in realised exchange income have contributed to the increase in this income source. Consequently, Other Operating Income for 1Q 2017 stood at Rs. 776.2 million, as opposed to Rs. 724.9 million reported for 1Q 2016.

The operating expenses of the bank, which stood at Rs. 3.4 billion in 1Q 2016, increased to Rs. 4.0 billion during the period under review, reflecting a YoY increase of 15.9%. This increase was mainly due to an increase in personnel expenses triggered by salary increments and other relevant expenses, as well as general price hikes and tax increases, etc.

However, the Cost to Income ratio excluding VAT and NBT on financial services has improved to 43.7% in the first quarter of the year from the 50.8% reported in the same period of 2016. This records an improvement of 710 basis points, which is a significant achievement particularly in view of Sampath Bank having one of the youngest branch networks compared to its closest competitors.

Impairment charge amounting to Rs. 646.1 million recorded for 1Q 2017 showed an increase of Rs. 429.6 million over the comparative period’s charge of Rs. 216.5 million. Impairment charge against individually significant customers increased by Rs. 384.9 million due to provision increases made against already impaired customers after considering the latest market conditions. On the other hand, the collective impairment charge increased by Rs. 44.7 million, predominantly due to the growth in the loan portfolio.

Sampath Bank’s total asset base grew by 5.1% (annualised 20%) in 1Q 2017 to reach Rs. 692.1 billion as at 31 March 2017. The total asset position as at 31 December 2016 stood at Rs. 658.5 billion.

Gross loans and receivables grew by 6.5% (annualised 26%) during the period and moved up to Rs. 498.9 billion (up by Rs. 30.4 billion) as at 31 March 2017.

The total deposit base too increased by Rs. 22.9 billion, recording a growth of 4.4% (annualised 18%) during this period and stood at Rs. 539.2 billion as at the reporting date. The CASA ratio (38.4%) remained unchanged from 31 December 2016 to 31 March 2017.

ROE (after tax) declined from 23.47% as at 31 December 2016 to 20.72% as at 31 March 2017. ROA (before tax) too has marginally contracted to 2.10% from 2.14% in the same period. However, compared to 31 March 2016, both ROE and ROA have shown increases as at 31 March 2017.

The Basic Earnings per share for 1Q 2017 has substantially improved and stood at Rs. 12.57 as against Rs. 9.34 recorded during the corresponding period of the previous year. This was an impressive YoY growth of 34.6%.

Statutory Liquid Asset Ratio (SLAR) as at 31 March 2017 was at 21.94%, showing a marginal improvement against the ratio recorded as at 31 December 2016 (21.84%). The bank was able to maintain SLAR well above the mandatory requirement of 20% throughout the period. Sampath Bank’s gross NPL ratio as at 31 March 2017 (1.73%), however, has marginally increased from the 1.61% recorded as at 31 December 2016 due to marginal deterioration of credit quality.

The Core Capital (Tier I) and Total Capital (Tier I + Tier II) adequacy ratios, which stood at 8.31% and 12.87% respectively as at 31 December 2016, have shown a drop during the period as a result of an increase in risk weighted assets triggered by growth in advance portfolio coupled with payment of cash dividend.

Accordingly, Core Capital and Total Capital adequacy ratios as at 31 March 2017 stood at 7.68% and 11.93% respectively. Despite the slight drop, both ratios were maintained well above the minimum regulatory requirement of 5% for Core Capital and 10% for Total Capital.

2017 is an important year for Sampath Bank, where the bank celebrates its 30th anniversary. Since its establishment in 1987, the bank has progressively developed in all spheres of its operation and today it is positioned as the third-largest private sector commercial bank in Sri Lanka. The bank is renowned for its innovative banking solutions and excellent customer service during the past three decades. 

www.ft.lk

Lankem buys PET bottle maker Kiffs for Rs. 225 m

Lanka Ceylon Group has acquired Kiffs Ltd., a manufacturer and distributor of PET bottles, for Rs. 225 million.

The acquisition is through Lankem, a fully-owned subsidiary of J.F. Packaging Ltd., in which the parent invested Rs. 320 million last month to take over the remaining 27.5% stake.

The move was to acquire 27.5% stake in JF Packaging Ltd. for Rs. 320 million. With the latest purchase, JF Packaging becomes a fully-owned subsidiary. In 2015, Lankem acquired 72.5% stake for Rs. 600 million.
www.ft.lk

Lankem goes for Rs. 480 m Rights

Lankem Ceylon Plc has decided to raise Rs. 480 million via a one-for-two Rights Issue at Rs. 40 each.

The move will issue 12 million shares with its current stated capital being Rs. 536.2 million.

The share price of Lankem on Friday closed at Rs. 57.40. The net asset per share is Rs. 59.55 as at 31.12.2016, down from Rs. 89.88.

The funds raised will be used to settle inter-company borrowings and to meet working capital. As at 31.12.2016, Lankem had Rs. 2,641 million in short-term dues (non-trade) to related parties. At the Group level it was Rs. 332.6 million.

EB Creasy and Company and related party The Colombo Fort Land and Building and Darley Butler control nearly 79% stake in Lankem Ceylon. The previous Rights Issue from Lankem was in 2010 on the basis of a 1-for-7 raising Rs. 255 million.
www.ft.lk