Sri Lankan stocks edge down in thin trade; budget awaited

Reuters: Sri Lankan shares inched lower on Tuesday, with trading volume slumping to a more than six-week low, as investors awaited the national budget presentation scheduled later this week.

The Colombo stock index closed 0.1 percent weaker at 6,595.89, its lowest since Oct. 24.

The turnover was 260.2 million rupees ($1.7 million), a quarter of this year’s average daily turnover of 937.8 million rupees.

“Investors are waiting for the budget, and quarterly earning have also failed to inspire investors,” said Prashan Fernando, CEO at Acuity Stockbrokers.

Sri Lanka’s central bank on Tuesday revised down its economic growth forecast to between 4 percent and 4.5 percent for this year after holding its key interest rates steady as it focuses on supporting a faltering economy hit by extreme weather.

Finance Minister Mangala Samaraweera will present the 2018 budget on Thursday.

Shares in top lender Commercial Bank of Ceylon fell 1 percent, while No. 1 mobile phone operator Dialog Axiata , which posted a 29.4 percent gain in its September-quarter earnings, closed 0.8 percent weaker.

Foreign investors sold shares net worth 82 million rupees in the session, but they have bought 20.3 billion rupees worth of equities so far this year.

($1 = 153.3500 Sri Lankan rupees) 

(Reporting by Shihar Aneez; Editing by Amrutha Gayathri)

DFCC Bank reports strong 3Q amidst successful expansion drive

DFCC Bank continued to demonstrate positive momentum across business in the 3rd quarter of 2017 as a rapidly emerging full service commercial bank.

Financial Performance

DFCC Bank recorded growth across all its income segments, with a 31% increase in operating income year-on-year. The Bank’s net interest income rose by 32%, to LKR 8,228 Mn buoyed by improvements to the net interest margin from 3.3% in December 2016 to 3.6% by September 2017. In addition, the Bank’s net fee and commission income grew by 17% to LKR 1,110 Mn complemented by the growth in business volumes.

The Bank augmented its total assets by LKR 32,568 Mn (11%) and reported a 31% growth in profit before tax of LKR 4,341 Mn and a 35% growth in profit after tax of LKR 3,418 Mn, despite a backdrop of higher taxes, volatile interest rates, tight margins and intensifying competition.

The Group closed nine months as at end September 2017, with a 24% year-on-year growth in profit before tax of LKR 4,377 Mn. Group profit after tax (PAT) for 3Q declined by Rs 525 Mn against the 3Q of 2016. This is mainly due to the Bank’s higher impairment provision and increased cost due to expansion. However, over the 9-month period, the Group recorded a consolidated PAT growth of 26% amounting to LKR 3,391 Mn.

The DFCC Group comprises DFCC Bank PLC (DFCC), and its subsidiaries - Lanka Industrial Estates Limited (LINDEL), DFCC Consulting (Pvt) Limited (DCPL) and Synapsys Limited (SL), a joint venture company - Acuity Partners (Pvt) Limited (APL) and associate company - National Asset Management Limited (NAMAL).

Anchoring growth firmly on a foundation of good governance, the DFCC Group and DFCC Bank maintained capital adequacy ratios well above minimum requirements under Basel III standards which came into effect from July 2017. As at 30 September 2017, the Group’s Tier 1 capital adequacy ratio stood at 11.83% and the total capital adequacy ratio at 15.49%. DFCC Bank recorded Tier 1 and total capital adequacy ratios of 11.37% and 15.04% respectively, which is well over the minimum regulatory requirements of 7.25% and 11.25%.

DFCC Bank continued to penetrate the market by expanding its branch network to be more accessible to customers. During the nine months ended September 2017, the Bank opened twelve fully-fledged branches across the country.

This coupled together with extensive business promotions, new savings products, and investments in IT system modernisations have contributed towards expanding delivery channels and improving service deliverables. The results of these investments are already evidenced in the lending and deposit growth as at end September 2017. The rapid loan portfolio growth to LKR 202,676 Mn by end September 2017, was outshone by the 33% (LKR 46,657 Mn) year to date deposit growth, which swelled total deposits to LKR 187,171 Mn by end September 2017. The Bank’s low cost deposits (CASA) increased by LKR 5 Bn during the 3rd quarter bringing the CASA ratio to 17% from 16% in June 2017. This growth in particular was an outcome from the various initiatives launched by the Bank during the year, to grow this segment of deposits.

DFCC Bank continues to enjoy medium to long term concessionary credit lines which has helped the Bank to maintain low cost of funds. When considering these funding lines and the low cost deposits, the ratio improves to 26.5% in September 2017.

Against this backdrop of asset growth, the Bank’s return on assets (ROA) improved to 1.7% by September 2017 from 1.6% in December 2016, while the return on equity (ROE) increased by 17.5% to 8.7%, from 7.4% in December 2016.

Due to the prudent recovery processes implemented and close monitoring, the Bank has been able to reduce the NP ratio to 3.24% by September 2017 from 3.34% recorded in March 2017.
Due to investments in people, IT and branch expansion the Bank’s operating expenses increased to LKR 4,190 Mn. Despite this increase, the Bank has been able to maintain a cost to income ratio of 44% (without the exceptional gain).

Operational Performance

DFCC Bank focuses on closely engaging with its customer base to understand and deliver according to their changing needs. In line with this, during the Quarter, DFCC Bank re-launched its minor savings product, adding value to its Junior customer base and further strengthening the product’s position as one of the leading minor savings products in the country. The product was re-launched with an exciting array of valuable gifts to provide the right inspiration for parents and children to save for the future.

In order to further drive this proposition, the Bank also conducted Vardhana Junior Seminars in 10 key locations across the country. Over 3000 students were coached in preparation for the Scholarship seminars held in collaboration with the Zonal Education Offices and these programmes proved to be significantly instrumental in adding value to all those who participated.

Upholding its commitment as a crucial partner for the exporter community in Sri Lanka, the Bank stepped forward to support the Colombo International Tea Convention held in August 2017, as a Strategic Partner. By partnering such a key event the Bank added value and growth opportunities for businesses in the Tea Industry.

DFCC Bank also continued its CSR efforts, pursuing its commitment to uplifting the standards of education in the country. DFCC Bank counts education as a key pillar in its corporate social responsibility initiatives having actively supported education over the years through various initiatives. In keeping with this, the Bank conducted an English Education programme, “Samata English” as a pilot project in the Gampaha and Kalutara areas, targeting youth between the ages of 16-22. The main objective of this project was to teach Spoken English and equip students with the knowledge required to enter into the workforce. This project was completed and a graduation ceremony was held during the quarter to recognize the achievers of this programme. The Bank received very positive feedback from the participants who expressed that their ability to speak in English with confidence has significantly increased. As a result of the success of this project, the Bank now plans to extend it to other areas across the country in the near future.

DFCC Bank also believes that staff plays an important role as ambassadors of the Bank. Therefore, during the quarter, in order to further reinforce the Bank’s vision, mission and values and engage with the Bank’s growing workforce, an internal campaign was launched updating the look and language of the values. The new concept introduced revolves around DFCCs people and accountability for living the values was deeply instilled through this initiative.

Mr Lakshman Silva took over as the CEO from Mr Arjun Fernando on 16 August 2017. Mr Silva who was the driving force behind the amazing success of DFCC Vardhana Bank in a short period of time, will use his acumen and experience to drive the Bank’s commercial banking business while continuing to promote and encourage project financing services, using expertise that DFCC has honed over six decades as one of the premier development banks in Asia.

DFCCs future outlook is positive as the Bank’s growth drivers are delivering results. The Bank’s key focus areas are enhancing operational efficiencies, strategic investments, notably in technology, IT systems and solutions and increasing our penetration into markets across the country. Thus, our optimism is reinforced over our medium-term outlook and we are set to close the financial year 2017/18 with greater value creation.

www.dailymirror.lk

Sri Lanka policy rates unchanged; inflation up, credit easing

ECONOMYNEXT - Sri Lanka said it is holding policy rates unchanged to help an economic recovery despite rising inflation but credit growth easing.

"In the monetary sector, the growth of credit to the private sector from commercial banks continued to moderate in September 2017 as envisaged," the central bank said.

The central bank was also selling down its Treasury bill stock, withdrawing excess liquidity and allowing foreign exchange to be bought from markets.

"Net credit to the government (NCG) also recorded a decline largely on account of the retirement of Treasury bill holdings of the Central Bank," the statement said.

The central blamed rising inflation on weather.

"Continued weather related disruptions weighed negatively on domestic food prices, which was reflected by the rise in headline inflation," it said.

Inflation in the capital rose to 7.8 percent in October, making Sri Lanka's central bank one of the worst performing in Asia.

Analysts have warned that inflation would rise in the future, regardless of domestic interest rates if the continues to weaken.

The rupee has depreciated 2.5 percent in 2017, after depreciating 3.8 percent in 2016 and steep collapse in 2015, in the style of a 1980's downward crawling peg. (Colombo/Nov07/2017)

The full statement is reproduced below:

Monetary Policy Review: No. 7 – 2017

Considering developments in the domestic and international macroeconomic environment, the Monetary Board, at its meeting held on 06 November 2017, was of the view that the current monetary policy stance is appropriate.

Accordingly, the policy interest rates of the Central Bank of Sri Lanka will remain unchanged at their current levels.

The decision of the Monetary Board is consistent with the objective of maintaining inflation at midsingle digit levels over the medium term and thereby facilitating a sustainable growth trajectory.

The rationale underpinning the monetary policy stance is set out below.

Global economic activity is expected to strengthen further, according to the latest update of the World Economic Outlook of the International Monetary Fund (IMF) in October 2017, driven by improvements in global trade and manufacturing. Alongside improved external conditions, the Sri Lankan economy is expected to perform better during the second half of the year as a result of the continued positive momentum of the Industry and Services sectors and the modest recovery in the Agriculture sector.

Although the economy remains vulnerable to supply-side disruptions stemming from weather related disturbances and rising global commodity prices, the implementation of the envisaged structural reforms and the realisation of inflows of foreign investments over the medium term are expected to improve the resilience of the economy.

Continued weather related disruptions weighed negatively on domestic food prices, which was reflected by the rise in headline inflation, measured using the Colombo Consumer Price Index (CCPI, 2013=100) as well as the National Consumer Price Index (NCPI, 2013=100).

However, core inflation, which is closely influenced by demand management policies, remained subdued reiterating that the recent escalation of headline inflation is supply driven and is of short term nature. Accordingly, inflation is expected to moderate from December 2017 and reach the desired levels in 2018, underpinned by appropriate monetary conditions as well as the dissipation of the ‘one-off’ effects of tax revisions on inflation.

In the monetary sector, the growth of credit to the private sector from commercial banks continued to moderate in September 2017 as envisaged. Net credit to the government (NCG) also recorded a decline largely on account of the retirement of Treasury bill holdings of the Central Bank.

With repayments made by key public corporations, the declining trend in credit to public corporations observed since June 2017 continued in September as well. With improvements in net foreign assets (NFA) of both the Central Bank and commercial banks, overall NFA of the banking system turned positive in September 2017. The build-up of NFA also contributed to the expansion of broad money supply (M2b). Meanwhile, in response to improved rupee liquidity in the domestic money market, some bank interest rates moved downwards in recent months.

In the external sector, the improvement in export performance during the first eight months of the year was outweighed by the notable increase in import expenditure, particularly on fuel, rice, and gold. Accordingly, the cumulative trade deficit widened during the first eight months of the year. Although tourist arrivals and associated foreign exchange inflows grew on a cumulative basis, workers’ remittances continued its declining trend mainly due to geo-political uncertainties in the Middle East.

The rupee denominated government securities market and the Colombo Stock Exchange (CSE) continued to attract foreign inflows. Amidst these developments, the Central Bank’s cumulative purchases of foreign exchange from the domestic market exceeded US dollars 1.2 billion on a net basis, and gross official reserves improved to US dollars 7.5 billion by end October 2017 from US dollars 6.0 billion at end 2016.

With increased flexibility in the determination of the exchange rate, the pressure in the domestic foreign exchange market has eased considerably. This has limited the cumulative depreciation of the Sri Lankan rupee against the US dollar to 2.5 per cent in the first 10 months of the year, in comparison to the depreciation of 3.8 per cent observed during the year 2016.

Against this backdrop, the Monetary Board decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank at 7.25 per cent and 8.75 per cent, respectively.

Sri Lanka’s Dialog Axiata Sept net profit up 31-pct

ECONOMYNEXT – Sri Lanka’s biggest mobile phone operator Dialog Axiata said September 2017 quarter net profit grew 31.3% to Rs3.7 billion from a year ago.

Sales rose 11.4% to Rs24.2 billion, according to interim accounts filed with the stock exchange.

Earnings per share for the quarter were 46 cents. Dialog shares were trading at Rs13.30 Tuesday morning.

EPS was 93 cents in the nine months to 30 September 2017 with net profit at Rs7.7 billion, down 2% from a year ago owing to an increase in depreciation, net finance cost and non-cash translational forex losses, the company said.

The Sri Lankan rupee depreciated 2.2% in the year to date resulting in a non-cash translational foreign exchange loss of Rs0.4 billion compared to Rs0.2 billion during the corresponding period in 2016.

Dialog Group continued to be a significant contributor to state revenues, remitting a total of Rs27.9 billion to the government during the first nine months of 2017, up 18% from 2016.

Total remittances included direct taxes and levies (Rs7.4 billion) as well as consumption taxes collected on behalf of the government (Rs20.5 billion), Dialog said.

Dialog said group capital expenditure for the nine months ended 30th September 2017 totalled Rs17.1 billion with spending on investments in high-speed broadband infrastructure.

The accounts showed Dialog Axiata’s television business made a Rs394 million loss in the nine months to September 2017

A note to the accounts said Dialog Television (DTV) “continued to consolidate its leadership position in the Digital Pay Television space with the subscriber base growing 17% YTD to exceed 926,000 as at end-September 2017.”

The TV business sales grew 6% in the September 2017 quarter from the previous quarter to reach Rs1.6 billion and 1% from a year ago to reach Rs4.6 billion for the nine months ended 30th September 2017.

Driven by aggressive cost initiatives, DTV EBITDA grew by 84% QoQ to reach Rs202Mn for Q3 2017 whilst on a YTD basis EBITDA grew 22% to be recorded at Rs377Mn.

Dialog said DTV’s net loss decreased 51% from the previous quarter although the net loss for nine months ended 30th September 2017 increased to Rs634 million from a net loss of Rs346 million recorded in the same period of 2016.

Sampath Bank tops Rs. 8.5 b mark in 9-month post-tax profit

Continuing its robust growth momentum, Sampath Bank said yesterday it has achieved Rs. 8.5 b in Profit After Tax (PAT) within the first three quarters of 2017, up by an impressive 26.2% from Rs. 6.7 billion recorded for the comparative period in the previous year.

Profit Before Tax (PBT) too grew by31.9% YoY to reach Rs. 11.8 b for the nine months ended 30 September 2017, as against the Rs. 8.9 b reported for the corresponding period in the previous year.

The Sampath Bank Group, which comprises of the Bank and four fully-owned subsidiary companies, also posted a growth in PAT and PBT of 26.5% and 32.4% respectively for the nine months ended 30th September 2017.

Net Interest Income (NII), the main source of income of the Bank which accounts for more than 70% of the total operating income, recorded an increase of Rs. 4.3 b (26.9%) compared to the corresponding period in 2016. Accordingly, NII for the first three quarters of 2017 amounted to Rs. 20.5 b, as against Rs. 16.1 b recorded for the comparative period in the previous year.

The above achievement was made possible by the robust growth recorded in the Bank’s fund base, as indicated by 18.5% (annualised 24.7%) growth in deposits together with 17.2% (annualised 22.9%) growth in advances. The timely re-pricing of asset and liability products and other fund management strategies adopted by the Bank too played a pivotal role in achieving the aforesaid growth in NII.

Net fee and commission income, which largely comprises of credit, trade, card and electronic channel related fees, increased to Rs. 5.9 b during the period under review, as opposed to Rs. 4.7 b recorded during the corresponding period in 2016. The notable YoY growth of 24.8% is largely the result of strong growth recorded in advances, expansion of credit card operations and the success of innovative value additions, especially electronic channel offerings.

Other operating income too recorded a YoY increase of 34.8% for the period under review, led mainly by an increase in realised exchange income. Net gain from financial investments also grew by 34.0%, bolstered by an increase in dividend income earned from financial assets. Consequently, other operating income and net gain from financial investments for the first nine months of 2017 stood at Rs. 2.5 b, compared to Rs. 1.8 b reported for the corresponding period in 2016.

Net trading income, which stood at Rs. 291 m as at the reporting date, is a marginal decline (0.5%) from the figure reported in the corresponding period in 2016.

Operating expenses of the Bank, which stood at Rs. 11.3 b for the first three quarters of 2016, increased to Rs. 12.2 b during the period under review, reflecting a YoY increase of 8.4%. This increase was mainly due to higher personnel expenses triggered by salary increments. Other overheads for the period also increased, in part due to general price hikes and indirect tax increases. Notwithstanding these increases however, the Bank’s Cost to Income ratio excluding VAT and NBT on financial services declined significantly to 42.0% in the first three quarters of 2017 from 49.1% reported for the same period in 2016, a notable improvement of 710 basis points.

Impairment charges, which amounted to Rs. 2.1 b for the first nine months of 2017, witnessed an increase of Rs. 1.2 b from the Rs. 0.9 b tabled for the same period in 2016. This was largely due to higher provisions made against newly-identified doubtful customers as well as additional provisions made against already impaired customers leading to higher impairment provisions on individually significant loans. Consequently, the impairment charge on account of individually significant loans grew by Rs. 420 m during the period under review.

Meanwhile, the collective impairment charge increased by Rs. 726 m, predominantly due to the growth in the loan portfolio and the improvements made to the collective impairment models during the fourth quarter of 2016. The NPA ratio too has increased marginally from 1.61% in December 2016 to 1.74% in September 2017.

Notably, however, the Bank’s NPA remains the lowest among industry peers, standing well below its closest competitors. These record-low NPAs are an indication of the Bank’s commitment to maintain the quality of the loan book by engaging in proactive recovery measures on an ongoing basis.

Sampath Bank’s total asset base grew by 14.3% (annualised 19%) during the period under review to reach Rs. 752.8 b as at 30 September 2017. In comparison, the total asset position as at 31sDecember 2016 stood at Rs. 658.5 b. Gross loans and receivables grew by 17.2% (annualised 23%) to hit Rs. 549.2 b as at 30 September 2017, growing by Rs. 80.7 b for the nine-month period. The total deposit base too increased by Rs. 95.4 b for the same period, to reach Rs. 611.6 b as at the reporting date, a growth of 18.5% (annualised 25%). However at 34.1%, the CASA ratio as at 30 September 2017 showed a decline compared to the 38.4% registered 31 December 2016. The decline can be attributed to the higher growth recorded in the fixed deposit base.

ROE (after tax) reported a marginal decline from 23.47% as at 31 December 2016 to 23.14% as at 30 September2017. However, the ROA (before tax) increased to 2.24% as at the reporting date, up from 2.14% as at 31 December 2016.

The Basic Earnings Per Share for the first nine months of 2017 registered impressive YoY growth of 26.2% to reach Rs. 45.45 as against Rs. 36.01 recorded for the comparative period in 2016. The Statutory Liquid Asset Ratio (SLAR) at DBU and FCBU levels stood at 21.15% and 24.51% respectively as at 30 September 2017, well above the mandatory requirement of 20%.

It is important to note that with effect from 1 July 2017, the entire banking industry switched over to Basel III – International Regulatory Framework for Banks. Accordingly, Sampath Bank’s Common Equity Tier I Capital, Tier I Capital and Total Capital Adequacy ratios as at 30 September 2017, which stood at 8.46%, 8.46% and 11.85% respectively, have been computed based on Basel III requirements for the first time. All three ratios stood well above the minimum regulatory requirement of 6.25%, 7.75% and 11.75% respectively.

The year 2017 proved to be yet another rewarding one for Sampath Bank, with the Bank clinching three of the most prominent international banking awards during the first nine months. Sampath Bank was recognised as ‘Sri Lanka’s Best Bank’ by the prestigious Euromoney Awards for Excellence 2017. This is the fourth time in which the Bank has been awarded the title in the last five years. Sampath Bank was also once again recognised as the ‘Best Commercial Bank 2017 in Sri Lanka’ and ‘Best Retail Bank 2017 in Sri Lanka’ by the UK based World Finance Magazine for the fourth consecutive year.

Sampath Bank upgraded its core banking system to a new version with effect from 1 September 2017. Equipped with a multitude of added features to improve and expedite the level of customer service, the new system will pave the way for an unprecedented banking experience in the years to come.
www.ft.lk

Sri Lanka’s Arpico supermarkets yield highest earnings

ECONOMYNEXT – Arpico’s supermarket chain in Sri Lanka now yield the highest profit margins and earnings per store compared with its rivals Cargills Food City and Keells Super, according to data in a new report by Fitch Ratings.

Arpico, the retail arm of Richard Pieris & Company PLC, has 61 stores compared with 64 for Keells and 315 for Cargills with all three firms having rising margins since 2015 and revenue growth of 21% in 2017.

Fitch Ratings said the scale advantage shared by the three large players should continue to help them to source products at low prices.

“We believe Cargills is ahead of other two players in this regard because it has strong backward integration with farmers and suppliers,” the ratings agency said in its report on the modern grocery retail sector.

Cargills supermarkets had the biggest sales, Rs66.3 billion in the 2017 financial year, followed by Keells with Rs29.8 billion and Arpico with Rs24.8 billion with Keells having the highest revenue growth in the past three years.

Cargills supermarkets also had the highest EBITDA or earnings before interest, taxes, depreciation and amortization of the three.

Arpico, which has the biggest number of stores in the hypermarket format, had an EBITDA margin of 8% in FY2017, the highest of the three, followed by Keells’ 6.5% and Cargills’ 5.6%.

Arpico also had the highest per store EBITDA margin of 33% compared with 30% for Keells and 12% for Cargills, having been equal with Keells at 30% in 2016 when Cargills’ stores yielded only 9%.

Fitch Ratings said a material increase in the portfolio of premium product ranges or consumer discretionary products, which tend to do well as disposable incomes rise, should help improve margins.

“Arpico already follows such a strategy and enjoys margins around 150bp-200bp above those of its peers,” it said.

“Keells which is increasingly moving towards the hypermarket format that offers extensive products should see margins improve.”

Sri Lanka’s Aitken Spence Sept quarter net up 8-pct

ECONOMYNEXT – Sri Lankan conglomerate Aitken Spence’s net profit in the September 2017 quarter grew 8% to Rs584 million from a year ago with the gains coming mainly from power generation with hotels in the red.

Sales grew 25% to Rs12.3 billion in the quarter, according to interim results filed with the stock exchange.

Tourism business losses narrowed while maritime and logistics sector profits were lower while profits from strategic investments, mainly thermal power generation, grew sharply.

Earnings per share were Rs1.44. EPS for the six months to September 2017 were Rs2.31 with revenue up 37.5% to Rs23.9 billion and net profit up by 18.9% to Rs939 million. The share was last traded at Rs60.

A statement said revenue from all four sectors, namely tourism, maritime and logistics, strategic investments and services increased over the six months compared to last year.
“The hotels sector occupancy levels have improved over the past year, although yields have been challenging across the markets that we operate, especially in Sri Lanka and the Maldives,” said J M S Brito, Deputy Chairman and Managing Director of Aitken Spence PLC.

Aitken Spence initiated a waste-to-energy project in August this year that would add 10 MW to the national grid in two years, in addition to providing a long-term solution to the garbage disposal problem in the Colombo Municipality, it said.

Aitken Spence Hotel Holdings PLC, a group company divested its entire holding in its fully owned subsidiary M.P.S. Hotels (Pvt) Ltd., on the 21st of September 2017 with the resultant gain reflected under other operating income.