Sri Lankan stocks gain for fifth session in muted trading

Reuters: Sri Lankan shares inched higher on Thursday in their fifth straight gaining session to a fresh three-week closing high as the central bank held key policy rates steady, with trading muted by the holidays after Christmas.

Sri Lanka’s central bank kept its benchmark interest rates unchanged before the market opened, saying inflation and private sector credit growth have cooled to a manageable level as policy makers focus on supporting a slowing economy.

The Colombo Stock Index ended 0.08 percent firmer at 6,364.34, its highest since Dec. 8.

“Unchanged rates is a positive sign for the market. It will help the market to start the new year on a positive note,” said Hussain Gani, Deputy CEO at Softlogic Stockbrokers.

Shares in Sri Lanka Telecom Plc rose 3.2 percent, while Chevron Lubricants Lanka Plc ended 3.2 percent higher and Melstacorp Ltd gained 0.9 percent.

Turnover stood at 221 million rupees ($1.44 million), less than a quarter of this year’s daily average of 920.5 million rupees.

Foreign investors bought shares net worth 98.2 million rupees on Thursday extending the year-to-date net foreign inflow to 18.3 billion rupees in equities. 

($1 = 153.1000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal; Editing by Amrutha Gayathri)

CIFL saga hots up; depositors point at Central Bank cover up

By Chandeepa Wettasinghe

The depositors of the failed Central Investment and Finance PLC (CIFL) yesterday alleged that the move by the Central Bank to close down CIFL and its group companies is to cover up the irregular and possibly illegal conduct of the Central Bank officials regulating these companies.

Nishantha Attanayake, a Director at City Finance Corporation Limited—a CIFL group subsidiary— told a press conference yesterday that the Central Bank officials want to cover up all the illegal activities of former CIFL Chairman Deepthi Perera and said if a forensic audit is conducted, a number of Central Bank officials will be in trouble.

Perera went into hiding in Cambodia for two years after it was alleged that he defrauded the CIFL depositors and mismanaged the company. He was arrested upon return to Sri Lanka and bailed out in 2015 and the legal proceedings are ongoing.

Former Additional Auditor General A.H.M.L. Ambanwala, who was also at the press conference, said that after looking through some of the accounts of CIFL he was presented with, he feels a comprehensive audit is required and that he would extend his expertise if required.

“From recent discussions, what became clear to me was that there was a weakness in the Central Bank’s regulatory and monitoring roles. Deposits are made in finance companies based on the fact that they are monitored and audited by the Central Bank. That duty has not been carried out,” he said.

CIFL Depositors’ Association President Wijeya Gunawardana added that the reputation of the Monetary Board of Sri Lanka, which governs the Central Bank, is now in question and the confidence placed in the Central Bank has now been shattered.

“We’re evaluating what to do, whether to take to the roads or to the courts. We will tell every Sri Lankan to take their money out of finance companies and put them in a state bank. We will create a situation where the entire financial industry will collapse,” Gunawardana said.

He also said from 2009-2013, persons with questionable reputation were appointed to the boards of the CIFL group companies, giving scant regard to fit and proper requirements for such posts, for which the Central Bank bears the responsibility of enforcing.

Gunawardana alleged that senior officials in the Central Bank and the judiciary had conspired to dismiss legal action taken by the depositors in the Court of Appeals against the Central Bank for not managing the situation since taking CIFL into its custody since 2013.

The Central Bank officials had also sabotaged the efforts to take up the issue at the Supreme Court, he alleged.

These allegations against the Central Bank come at a time when the top management of a controversial primary dealer has confessed at a Presidential Commission for conducting insider trading in collusion with the Central Bank officials at treasury bond auctions.

Most of the depositors at the CIFL group companies have not received their deposits back, while some have had their deposits converted to shares and many are not receiving their due interest.

While CIFL was in troubled waters, the then Central Bank Governor Ajith Nivard Cabraal in 2014 had visited Singapore with the Colombo Stock Exchange officials during a roadshow to attract investors to Sri Lanka and had attempted to woo Singaporean investors into Sri Lanka’s financial sector, which was undergoing consolidation forced upon by the government.

It was then that One Asia Investment Partners Pte Ltd (OAIP)—which is currently not allowed to manage funds in Singapore since the Monetary Authority of Singapore revoked OAIP’s Capital Markets Services Licence this April for ineffective management—decided to invest Rs.198 million in the CIFL subsidiary, City Finance, through a local subsidiary set up by OAIP.

However, with the change of government in January 2015, the current government decided to discontinue the policy of forcing the sector to consolidate and the Central Bank had then decided not to honour the agreement the Central Bank had signed with OAIP, which included the Central Bank investing equal amounts of capital that OAIP invested in City Finance, according to OAIP Local Representative Dakshitha Bogollagama.

Bogollagama has currently filed legal action against the Central Bank for not honouring the agreement and this legal action had resulted in City Finance’s licence not being revoked by the Central Bank at the same time as CIFL.

According to depositors and company officials, CIFL has received offers from German, Swiss and Australian investors to bail out the company and repay the depositors.

“But the Central Bank was not that keen to accept investors. They didn’t treat the investors properly,” Gunawardana said.

He added that these three investors are ready, even today, to invest in CIFL if the Central Bank is willing to reverse its decision to cancel CIFL’s licence.

However, the Central Bank, at the time of revoking CIFL’s licence, said that it has “extended the deadline given to a potential investor on several occasions to prove the availability of funds which has not been fulfilled as yet”.

The Central Bank, after considering the plight of small depositors in CIFL, had also offered to expand the Sri Lanka Deposit Insurance and Liquidity Support Scheme limit of Rs.300,000 to Rs.600,000 in order to ensure that 2,501 out of the 4,092 CIFL depositors would be repaid their deposit values.

Gunawardana however said that all depositors are of equal standing in the CIFL Depositors’ Association regardless of the money deposited and that the association expects justice to be given to all the depositors.

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Central Bank seen keeping policy rates steady to support growth

Reuters: Sri Lanka’s Central Bank is expected to keep its key interest rates unchanged this week, a Reuters poll showed, as policymakers focus on supporting the slowing South Asian economy while remaining vigilant to still high inflationary pressures.

All 11 economists in the survey predicted the Central Bank would keep its standing deposit facility rate (SDFR) and standing lending facility rate (SLFR) unchanged at 7.25 percent and 8.75 percent, respectively.

They also forecast the statutory reserve ratio (SRR) to stay at 7.50 percent.

The International Monetary Fund (IMF) earlier this month urged Sri Lanka to maintain a tightening bias on monetary policy until clear signs emerge that inflationary pressures and credit growth are moderating.

“The Central Bank will see through the high inflation and maintain the policy rates as growth is the priority now,” Softlogic Stockbrokers Research Head Danushka Samarasinghe said.

“Without any changes in the policy rates, the market rates are adjusting. We see the market rates coming down with foreign money starting to come in.”

Central Bank Governor Indrajit Coomaraswamy has said the monetary authority does not see a need for a rate rise due to lower core inflation but it is cautiously monitoring the numbers.

The Central Bank has said it wants to curb credit growth to 15 percent by end this year. Annual private sector credit growth slowed to 17.5 percent in September from May’s 18.9 percent and well off a near four-year high of 28.5 percent hit in July 2016.

Consumer inflation was up 7.6 percent in November from a year earlier, slowing from a record high of 7.8 percent hit in the previous month.

Since the Central Bank’s last rate hike in March this year, treasury bill rates have fallen between 188-206 basis points, mainly driven by foreign buying of T-bonds, which is good for the economy but may also add to inflationary pressures.

The previous rate increases have dragged on the US $ 81 billion economy, which grew at an annual pace of 3.7 percent in the first nine months of 2017, slowing from 4.0 percent growth in the same period in the previous year.

The Central Bank has tightened monetary policy four times since December 2015 through March this year to fend off pressure on the fragile rupee and curb stubbornly high credit growth that stoked inflation.

FC Research forecasts no change in policy rates

FC Research, the research arm of First Capital Holdings PLC, yesterday ruled out a change in policy rates at the monetary policy review that will be announced this morning.


“FC Research believes that despite inflation remains high, GDP growth and credit growth are below our expectation.

Consideration of the above macroeconomic environment, the current monetary policy is appropriate and no change is required,” FC Research said in a brief note. According to FC Research, there is 90 percent bias towards the Central Bank keeping the policy rates unchanged and a 10 percent bias towards cutting the rates by 25 basis points.

FC Research in August upgraded private sector credit growth for 2117 to 16 percent from 14 percent amid a possible pickup towards the year end.

The private credit figure decelerated to Rs.50 billion in September 2017.

Sri Lanka’s GDP grew 3.3 percent in 3Q17, impacted by the poor performance of the agriculture sector due to unfavourable weather conditions.

Meanwhile, FC Research forecasts December headline inflation to be at 7.2 percent.

“We believe inflation will be under control over the next two to three months while there could be some upward pressure towards 2Q2018.”

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