Siyapatha Finance to raise Tier 1 capital with a rights issue

LBO – Sri Lanka’s Siyapatha Finance is planning to raise 250 million rupees by way of a rights issue, the company said in a stock exchange filing.

The director board has resolved to increase the Tier 1 capital of the company through this rights issue.

Subjected to the regulatory and shareholder approvals, the company is to issue 6,250,000 new ordinary shares at 40 rupees each in the ratio of 40 new shares for every 367 existing shares.

The current stated capital of the company is 698.67 million rupees.

Sri Lanka central bank keeps rates unchanged

ECONOMYNEXT -Sri Lanka's central bank kept policy rates unchanged, saying inflation will remain in single digit levels, despite a temporary uptick in the index as fuel and gas prices were raised, while food prices continue to fall.

"However, a temporary uptick in inflation is expected in the short term due to the impact of upward price revisions to domestic petroleum products, LP gas and milk powder," the central bank said in its may Monetary policy statement.

"Nevertheless, with the dissipation of these transitory supply driven price pressures and further improvements in domestic food supplies, inflation is expected to stabilise in the desired mid-single digits in the second half of 2018.

"Inflation is projected to remain within the 4-6 per cent target range over the medium term."

The central bank had earlier said 12-month inflation index would fall in the first quarter of 2018 and has delivered on its promise.

Consumer prices fell to 3.8 percent in March 2018, from 7.1 percent in December.

Until March it did not print money and was sterilizing forex purchases. Under modern central banking inflation generated in the past is a 'bygone'.

The central bank said growth of private credit "hovered around the envisaged level" without mentioning what the envisaged level. Based on past statements the central bank is believed to be comfortable at credit growth of around 15 percent growth or below but it does not have a hard target.

It said " high seasonal credit demand" was witnessed in March 2018.

Private credit had expanded by 122 billion rupees in March up from 58 billion in February. In 2017 March credit was 82 billion rupees.

Broad money growth increased 'marginally' the central bank said.

Broad money growth is expected to stabilize around 15 percent by end 2018.

The central bank said core inflation "remained subdued".

Sri Lanka's central bank is moving towards a more predicatble inflation targeting regime.

However in a foray in to fully fledged Mercantilism, the central bank focussed on the trade deficit and a bid by the government to tax gold imports.

"The imposition of the Customs duty on gold imports is expected to help narrow the trade deficit to some extent," the central bank said.

Other analysts have predicted that gold smuggling into Sri Lanka will go up and the competitiveness of the jewellery industry will be hit by so-called effective taxation.

The full statement is reproduced below: 

Click for data table here

The Central Bank of Sri Lanka maintains policy interest rates unchanged

The Monetary Board of the Central Bank of Sri Lanka, at its meeting held on 10 May 2018, decided to maintain policy interest rates at their current levels. Accordingly, the Standing Deposit Facility Rate (SDFR) and Standing Lending Facility Rate (SLFR) remain at 7.25 per cent and 8.50 per cent, respectively. The Board’s decision aims at stabilising inflation in mid-single digit levels in the medium term, thereby contributing to a favourable growth outlook for the Sri Lankan economy.

After a brief supply-driven uptick in the short term, inflation to stabilise in mid-single digit levels Headline inflation, based on the Colombo Consumer Price Index (CCPI) and the National Consumer Price Index (NCPI), continued to decelerate to reach low single digit levels, as volatile food prices declined due to favourable domestic supply conditions. Meanwhile, core inflation remained subdued indicating contained demand pressures, while inflation expectations continued to decline.

However, a temporary uptick in inflation is expected in the short term due to the impact of upward price revisions to domestic petroleum products, LP gas and milk powder. Nevertheless, with the dissipation of these transitory supply driven price pressures and further improvements in domestic food supplies, inflation is expected to stabilise in the desired mid-single digits in the second half of 2018. Inflation is projected to remain within the 4-6 per cent target range over the medium term. 2

Economic growth to recover in 2018

After the sub-par growth performance in 2017, a moderate recovery in the Sri Lankan economy is foreseen in 2018 owing to strengthening global economic activity and improving domestic conditions. Forward looking indicators suggest an improvement in the economic performance on the back of the modest recovery in the Agriculture sector and continued positive momentum in the Industry and Services sectors.

While the continuation of fiscal consolidation efforts may somewhat dampen growth prospects, the macroeconomic benefits that the economy is to derive from fiscal discipline will ensure sustained growth over the medium term. Alongside the implementation of envisaged structural reforms and the receipt of expected inflows of foreign investment, a conducive low inflation environment and a competitive exchange rate are expected to enable the economy to attain its potential over the medium term.

Short term market rates respond to policy easing in April 2018

Responding to the policy rate adjustment in April 2018, overnight interest rates have declined to stabilise around the midpoint of the narrower policy rate corridor. In line with the decline in short term interest rates, other market interest rates, particularly interest rates on lending, are also expected to adjust downwards in the period ahead.

The growth of credit extended to the private sector by commercial banks hovered around the envisaged levels although a high seasonal credit demand was witnessed in March 2018. Based on the data up to end March 2018, private sector credit appears to have been fairly distributed across all major sectors of the economy. As a result of the festive season-led credit expansion, broad money growth increased marginally in March 2018. However, broad money growth is expected to stabilise at around 15 per cent by end 2018.

Build-up of official reserves continues amidst tightening global financial conditions

Exports have maintained the positive momentum with export earnings growing during the first two months of 2018. However, this was outweighed by the increase in import expenditure, largely driven by gold and vehicle imports, which resulted in a widening of the trade deficit. The imposition of the Customs duty on gold imports is expected to help narrow the trade deficit to some extent.

Earnings from tourism and workers’ remittances continued their growth performance so far during the year. On account of tightening global financial conditions, the rupee denominated government securities market experienced a net outflow while the Colombo Stock Exchange (CSE) 3 attracted net inflows so far during the year. Amidst these developments, the Central Bank recorded a net foreign exchange absorption of US dollars 458.5 million from the domestic market in 2018 up to end April. With the successful issuance of the International Sovereign Bond (ISB) in April 2018 and foreign exchange purchases by the Central Bank from the domestic market, the gross official reserve position had improved to US dollars 9.9 billion by end April 2018, the record highest level in history. So far during the year, the exchange rate had depreciated against the US dollar by 3.1 per cent.

Much of this depreciation came in late April and early May, reflecting the US dollar’s broad-based strengthening in global markets. The Central Bank intervened in the domestic foreign exchange market to mitigate excessive volatility in the exchange rate, and the rupee has shown signs of stabilisation.

Unchanged policy stance to sustain inflation at mid-single digit levels

Based on the current developments and outlook for key macroeconomic variables, the Monetary Board of the Central Bank was of the view that the continuation of the current monetary stance is suitable. In arriving at this decision, the Board took into consideration the recent global market developments, the macroeconomic impact of recent adjustments in administered prices, and the fact that more time is needed to assess the market and economic impact of the policy rate adjustment in April 2018.

Accordingly, in line with the Central Bank’s focus on stabilising inflation in mid-single digits over the medium term, the Monetary Board decided to maintain the Standing Deposit Facility Rate (SDFR) and Standing Lending Facility Rate (SLFR) of the Central Bank at their current levels.

Sri Lanka's Bank of Ceylon March 2018 quarter net down 20-pct

ECONOMYNEXT - Profits at Sri Lanka's state-controlled Bank of Ceylon fell 19.6 percent from a year earlier to 4.8 billion rupees in the March 2018 quarter on thinning interest margins and increasing provisions for loan losses, interim accounts showed.

The bank reported group earnings of 1,279.87 rupees a share in the quarter, unaudited interim financial results filed with the Colombo Stock Exchange showed.

Interest income grew 15 percent to 46.9 billion rupees, interest expenses grew at a faster 19.5 percent to 31.8 billion rupees leading to a 6.5 percent growth in net interest income to 15.1 billion rupees.

Net fee and commission income fell 19.6 percent in the quarter to 1.8 billion rupees.

Loan loss provisioning increased 38 percent to 2.4 billion rupees, while operating expenses including personnel costs and depreciation grew 24 percent to 8.7 billion rupees.

The state banking giant reported an 275.4 million rupee gain from forex operations in the March 2018 quarter, down 15.5 percent from a year earlier.

Bank of Ceylon's deposit base expanded 5 percent from the previous December 2017 quarter to 1.62 trillion in the March 2018 quarter. The bank's loan book expanded 2 percent to 1.2 trillion rupees.

Sri Lanka's NDB Bank March 2018 quarter profits up 56-pct

ECONOMYNEXT - Profits at Sri Lanka's NDB Bank grew 56 percent from a year earlier to 1.2 billion rupees in the March 2018 quarter, on improving interest margins and increasing incomes from financial investments and fee and commissions, interim accounts showed.

The bank reported group earnings of 6.49 rupees a share in the quarter. The stock was trading 1 rupee higher at 135 rupees in early trading.

"Net interest income was strengthened by the improvement in net interest margin to 3.5 percent from 3 percent in 2017 and growth in business volumes," NDB Bank told shareholders.

Interest income grew 15 percent to 9.9 billion rupees, interest expenses growing at a slower 5 percent to 6.5 billion rupees resulted in net interest income increasing 42 percent to 3.5 billion rupees, interim financial results filed with the Colombo Stock Exchange showed.

"Growth in the loan book, particularly in leasing and credit cards, and the accelerated penetration of the Bank’s mobile banking app were instrumental in generating enhanced fee based income," the bank told shareholders.

Net fee and commission income grew 30 percent to 927 million rupees.

Gains from financial investments amounted to 423.3 million rupees, against 65 thousand rupees a year earlier.

Loan loss provisioning increased 613 percent to 795 million rupees.

"The increase in the collective impairment charges was primarily due to the portfolio growth and some stresses experienced in the lending portfolio," NDB Bank said.

The bank said it made precautionary provisions for a few selective individually significant facilities on a prudent basis during the quarter.

"The Bank’s prudent risk management strategies and robust recoveries mechanisms are anticipated to reduce the impairment charges during the year," NDB Bank said.

Operating expenses including personnel and depreciation grew 12 percent to 2.1 billion rupees.

NDB Bank's deposit base grew 4 percent from the previous December 2017 quarter to 283.8 billion rupees in the March 2018 quarter. The bank's loan book grew 3 percent to 282 billion rupees.

The banking group reported a capital adecuacy ratio of 14.44 percent in the March 2018 quarter, down from 15.18 percent the previous quarter. The minimum regulatory requirement is 11.875 percent.

Sri Lanka’s Kelani Valley Plantations March quarter net down 45-pct

ECONOMYNEXT - Sri Lankan regional plantation company Kelani Valley Plantations said net profit fell 45% to Rs151 million in the March 2018 quarter from a year ago but it managed to end the year with a profit compared to a loss the previous year.

Sales rose 7% to Rs 2.3 billion during the period, according to interim accounts filed with the stock exchange.

The firm, part of the Hayleys group, had earnings per share of Rs4.44 in the March 2018 quarter. The share was last traded at Rs79.50.

EPS for the full year was Rs4.56 compared with a loss per share of 55 cents the previous year.

Kelani Valley Plantations accounts showed that during the year gross profits in the tea business more than doubled to Rs882 million while profits from rubber stayed flat at Rs176 million.

Sri Lanka's Nations Trust Bank March quarter profit up 30-pct

ECONOMYNEXT - Profits at Sri Lanka's Nations Trust Bank increased 30 percent from a year earlier to 725 million rupees in the March 2018 quarter on improving interest margins despite a surge in loan-loss provisioning, interim accounts showed.

The bank reported group earnings of 3.38 rupees a share in the quarter, according to interim financial statements filed with the Colombo Stock Exchange.

"Profitability growth was underpinned by growth in loans and advances during the period under review along with improving net interest margins," the bank told shareholders.

Nations Trust Bank was trading 50 cents higher at 86 rupees in early trading Friday.

Interest income rose 30 percent to 8.3 billion rupees while interest expenses fell 22 percent to 4.8 billion rupees, expanding net interest income by 43 percent to 3.5 billion rupees.

Net fees and commission income increased 15 percent to 1.3 billion rupees.

Loan-loss provisioning increased 170 percent from a year earlier to 478.9 million rupees in the March 2018 quarter.

The bank told shareholders that the growth in loan-loss provisioning was due to the combined impact of portfolio growth coupled with some stress seen in selective portfolios, resulting in a non-performing loans increasing to 2.62 percent of total loans, up from 2.29 percent the previous December 2017 quarter.

"The bank has put significant focus to strengthen the collection and recovery processes," Nations Trust Bank said.

Trading losses rose 263 percent to 202 million rupees and included costs related to its swap book expanding 30 percent and forward premiums increasing 50 basis points.

Operating expenses including personnel and depreciation fell 14 percent to 2.3 billion rupees.

Nation Trust Bank's deposit base grew 9 percent from the previous December 2017 quarter to 211.5 billion rupees in the March 2018 quarter. The bank's loan book grew 7 percent to 200.3 billion rupees.

The banking group's capital adequacy ratio improved to 15.07 percent as at end March 2018, from 13.89 percent the previous quarter. The minimum regulatory requirment is 11.875 percent.

Sri Lankan shares close little changed, but post third weekly fall

Reuters: Sri Lankan shares closed little changed on Friday as most investors stayed on the sidelines to see the real impact of a hike in fuel prices, brokers said.

State-run fuel retailer Ceylon Petroleum Corp (CPC) raised retail prices for gasoline and diesel from Thursday midnight in response to rising oil prices.

The Colombo stock index fell for a fifth straight session and ended 0.01 percent weaker at 6,478.87, its lowest close since April 11. The index lost 0.4 percent this week, in its third straight weekly fall.

“Most of the investors were on the sidelines waiting to see the real impact of the fuel price increase,” said Atchuthan Srirangan, assistant manager-research at First Capital Holdings PLC.

“Though the fuel price increase was expected, it could impact the bottom lines of manufacturing and transportation companies directly, while it will also push inflation and other costs, and could impact other companies too.”

The market shrugged off the central bank’s policy decision earlier in the day as it was widely expected, said Srirangan.

The central bank kept its key policy rates steady, a little more than a month after it unexpectedly cut the main lending rate, forecasting a modest recovery in the economy this year after growth slumped to a 16-year low in 2017.

Analysts said the depreciation of rupee also weighed on investor sentiment as it is likely to hit profits of some listed firms that rely heavily on imports.

The rupee hit a fresh low last week on importer demand for the U.S. currency.

Shares of BRAC Lanka Finance Plc fell 23.4 percent, Dialog Axiata Plc dropped 1.4 percent and conglomerate John Keells Holdings Plc ended down 0.2 percent.

Fitch Ratings has said that recent political developments in Sri Lanka have created some uncertainty over reform momentum and fiscal consolidation, and prolonged upheaval could undermine investor confidence ahead of large external debt maturities in 2019-22.

Sri Lankan President Maithripala Sirisena on Tuesday urged his own coalition government and the opposition to end a power struggle in order to achieve ambitious goals including anti-corruption measures.

Turnover stood at 769.5 million rupees ($4.88 million), less than this year’s daily average of 1.03 billion rupees. Foreign investors net bought 24.3 million rupees worth of equities on Friday, but the market has seen a net foreign outflow to 335.4 million rupees worth of equities so far this year. 

($1 = 157.8000 Sri Lankan rupees) 

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