Sri Lankan shares fall to over 7-1/2 mth closing low on budget worries

Reuters: Sri Lankan shares fell to a more than seven-and-a-half-month closing low on Monday, led by blue chips such as John Keells Holdings Plc and Commercial Bank of Ceylon Plc on worries earnings of financial firms would fall after the new budget proposals announced were implemented.

The main stock index ended 0.75 percent, or 52.26 points, weaker at 6,909.15, its lowest close since April 10.

"Nothing much is happening with very low retail and high net worth investor participation," said Dimantha Mathew, research manager at First Capital Equities (Pvt) Ltd.

"With the month-end settlements, big caps came down. With very low foreign participation, markets will continue to come down for the next few weeks until we see steady foreign inflows."

Sri Lanka's consumer prices in November rose to 10-month high of 3.1 percent from a year earlier, the Department of Census and Statistics said on Monday.

Rating agency Fitch said on Tuesday that Sri Lanka's 2016 budget provides no clear plan for fiscal consolidation over the medium term and the absence of such a framework will put more pressure on the fiscal deficit.

"Fitch believes there are risks to government being able to meet its fiscal deficit target, especially considering the trend in revenues in recent years," the rating agency said.

The government on Nov. 20 announced a raft of steps, including the removal of a 0.3 percent share transaction levy, to stimulate trading in the share market and increase liquidity.

Shares of conglomerate John Keells Holdings fell 2.55 percent, while the country's biggest listed lender, Commercial Bank of Ceylon, dropped 3.24 percent and Nestle Lanka Plc declined 1.63 percent.

Turnover was 754.4 million rupees ($5.27 million), lower than this year's daily average of 1.1 billion rupees.

Foreign investors, who have been net sellers of 3.77 billion rupees worth of shares so far this year, bought a net 34.27 million rupees worth of equities on Monday. 

($1 = 143.2500 Sri Lankan rupees) 

(Reporting by Ranga Sirilal; Editing by Subhranshu Sahu)

6 cos. ring delisting bell

By Paneetha Ameresekere

Ceylon Finance Today: Following Bukit Darah, Selinsing and Good Hope, two other Carson Cumberbatch companies have also given recent signals to delist.

Those are Shalimar and Indo-Malay plc. Voicing similar sentiments as that of Bukit, Selinsing and Good Hope, the two companies have told its shareholders, vis-a-vis their 30 September, 2015 quarterlies, that in lieu of the directives given by the regulators of the Colombo Stock Exchange (CSE), i.e. to increase the minimum float to 15% of voting shares, and to have a minimum share holding of 500, they are "compelled" to seek a delisting. The companies have no intention to dilute their shares. The Carson Cumberbatch Group, its subsidiaries and other connected companies, be they parent, associates or subsidiaries, are controlled by the Selvanathan brothers, Mano and Hari.

Bukit, Good Hope, Selinsing, Shalimar and Indo-Malay overlook the Carsons Group's overseas plantation companies, which are primarily located in Malaysia and Indonesia. They are essentially palm oil plantations, a commodity, which like tea, has seen its prices suffer a steep slide recently, led by the fall in oil prices-considered as the "jewel in the crown" commodity which gives direction to other commodity prices, ipso facto such as palm oil and tea. Those five Carsons companies have no interest to dilute their holdings either. Further, their share prices are relatively expensive, so, there is a question mark as to whether those companies are also able to attract investors, given the relative smallness of the CSE. Such high prices also make their shares illiquid.

The yellow light, preceding the greenlight given by those four companies to delist, follows Finlays, another plantation company, this time owned by the Swire Group, UK, recently notifying of their intent to delist and giving the price at which they will pay its small investors who want to sell their shares, at Rs 302 a share.

Market sources told this reporter that the CSE needs to be a place of attraction where listed companies can make money. Those are initially through an "IPO" the route from where they get listed, followed by rights and debentures issues to raise further cash.

If these criteria cannot be met, or, rather, unlisted companies not seeking to public, the CSE needs to examine why this is so. Is it due to its smallness, or due to any other reason?
One insinuation is that stock market manipulators not being prosecuted. That, apparently being why companies want to delist.

There is paperwork and attendant costs attached to a company being listed.

Nonetheless, such happenings are allegedly a source of discouragement to at least the majority shareholders of certain companies. Nevertheless,If crooks are allowed to go scot free, it acts as a disincentive to all bona fide stakeholders of the CSE and not just a few high net worth individuals only. 
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Govt. to plunder Rs 1.7 Trillion EPF, ETF cash

By Ravi Ladduwahetty

A frontline anti-corruption watchdog this week alleged that the government was attempting to plunder the private sector employees inheritance-the Employees Provident Fund and the Employees Trust Fund savings, under the guise of creating a private sector Pension Fund.

"This is glaring day light robbery with the government trying to lend that money to venture capital funds, president of the Inter Company Employees Union Wasantha Samarasinghe charged in an interview with Ceylon Today.

He added that the previous government also invested the EPF and ETF funds in corporate listed on the Colombo Stock Exchange and suffered heavy losses, thus jeopardizing the interests of private sector employees.

The funds squandered amounted to over Rs 30 Billion, miniscule in the enormity of Rs 1.7 Trillion, he said.

The same players who manipulated the Colombo Stock Exchange in the past have now joined the present regime, he alleged.

He said, the Laughs Gas share which was Rs 38 was manipulated within one hour and artificially raised to Rs 48 with a large volume changing hands. There were the other shares such as those of Ceylon Grain Elevators which were also manipulated.

He alleged that the previous regime also attempted to manipulate the EPF and ETF Funds but had to withdraw the proposals in the wake of massive resistance. There were people like Roshen Chanaka who were killed by the previous regime, but we won our struggle in thwarting the attempts to play around with the private sector employees' funds, he said. 

Samarasinghe also said, the trade unions had a meeting with Prime Minister Ranil Wickremesinghe on November 14, but no details were spelt out as to how the Pension Fund was being created and what the Employees and Employers contributions were to be.

He also claimed that EPF and ETF funds were invested in Treasury Bonds and Bills and that 92-93% of the Funds were lent out.

He also claimed that the proposed private sector Pension and Gratuity Fund should also enable those at the lower spectrum of society such as the trishaw drivers, betel sellers, sweep ticket sellers and security guards and others to get some retirement benefits as well.

Samarasinghe said, instead 1% of tall tax revenue could be used for the creation of the Pension Fund.

He also alleged that the Government's attempt to misuse the EPF/ETF funds was a small manifestation of a bigger scheme to suppress workers rights. One of those, he alleged, was to make a five day working week by extending the working hours to nine, in contrast to the present eight. The government was bringing in these amendments to the labour laws in collusion with the International Labour Organization Agency and others.

"The eight hour working day was enacted by the international labour community after years of international struggles and we are not going to allow Finance Minister Ravi Karunanayake to tamper with what has been internationally accepted, he said.

The government, through the budget proposals, was making the working week nine hours per day and was making Saturday and Sunday non -working days.

He also proposed that with the mechanization in business, the working hours per day should be reduced to six or seven.

Samarasinghe proposed that the Pension Scheme could be maintained as it is, without creating a separate Fund. If the Rs 1.7 trillion was invested at a 10% interest rate, that would have Rs 170 billion. Even if Rs 20 billion was set off for allowances of private sector employees, there would be Rs 150 billion left which could give a monthly Rs 25,000 each to 500,000 private sector employees.

This is the way that the government pensioners get their money and the Consolidated Fund allows Rs 150 Billion for the payment of funds to state sector employees, he pointed out.

He also wanted to know who would shoulder responsibility if the government decision to invest the funds in Venture Capital companies fails.

The Mahinda Rajapaksa regime did not even gazette the promised Rs 2500 salary increase to the private sector and the Cost of Living and the people who vehemently opposed that move were MPs Ravi Karunanayake, Harsha de Silva, who are Government Ministers now, he said. It appears as if the course that this government is following is not that of Regaining Sri Lanka but rather more like that of 'Reselling Sri Lanka,' he quipped.

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LTV ratio for vehicle lease reduced again

The Central Bank of Sri Lanka (CBSL) has yet again changed the maximum loan to value (LTV) ratio for vehicle leasing to 70% with effect from December 1.

This is the third time that the maximum LTV ratio had been altered since September.

The CBSL on September 14 directed banks and financial institutions to follow new leasing rates which have been set at a maximum 70 per cent per vehicle.

However, it was increased to 90% from October 29.

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Finance cos. lack scope in doing leases

By Ishara Gamage

Ceylon Finance Today: Sri Lankan bankers seek their regulator Central Bank of Sri Lanka's (CBSL's) assistance to remove several budget proposals which may negatively impact their future performances.

In a letter to CBSL Governor, Sri Lanka Banks' Association (SLBA) said that the cessation of banks to engage in leasing business from 01 June 2016 is a highly unfair and impractical.

"We as bankers can cater to almost all segments of business and customers. We collectively have more than a 3,000 islandwide branch network. Whereas finance companies have very limited scope. They cannot lease large ships, aircraft and also they collectively have only 1,000 branches," SLBA Secretary General Upali de Silva, said.

Speaking to "Ceylon FT", he stressed that nearly half of the banking sector leases cater to the country's small and medium sector businesses. Further, banks can provide low cost leases compared to finance companies.

The letter also said that giving a 100% guarantee for finance companies deposits is also a highly questionable and risky affair.

"Giving 100% guarantee for finance companies may loosen management/ownership awareness of core business, because they know somehow the government will bail out their deposits" the Association warned.

But CBSL officials said that depending on the probability of finance company failures, prudent regulatory mechanisms will provide the necessary background for the government to give such 100% guarantees to finance companies.

"It seems to be wrong to give the guarantee of 100% to finance company deposits, whereas, CBSL is offering only up to Rs 200,000 to Rs 250,000 as compensation in the event of failure of any bank," de Silva however said.

Only National Savings Bank is being given a 100% guarantee in Sri Lanka by the Treasury currently. No other banks are given such a guarantee.

Analysts earlier told "Ceylon FT" that Sri Lankan bankers may find alternative ways to overcome their leasing restrictions which was proposed in the 2016 budget, analysts said. "Instead of giving direct leases, they can utilize similar services as vehicle or personal loans."

Speaking to Ceylon FT, Fitch Rating Country Head Maninda Wickramasinghe said that the budget proposal may dampen banks' profits, but it is good for the leasing industry.
"We are now studying the real outcome of these banks' leasing restrictions, most leasing companies have now become finance companies", he said.

Finance Ministry Secretary Dr.R.H.S. Samaratunga said that main purpose of that proposal was to develop the leasing industry as a separate industry.

"Like other industries, we must give incentives to the leasing industry to grow. What I feel is due to competition among its members, customers can apply for low rate leases," he said.

Samaratunga said most Sri Lankan banks use their low cost funds to give lucrative leases which give them large profit margins.

"We have to stop this culture and let banks focus on their core business", he said.
When asked whether banks' subsidiaries are allowed to do lease business, he said that they will issue a final circular after proper evaluation of the industry.

Budget 2016 proposed that banks should cease engaging in leasing business from 01 June 2016.

Analysts at Bartleet Religare Securities said, "We believe this proposal would be a serious challenge not only to banks, but to the consumer as well.

Motor leasing in particular is a preferred way to drive loan book growth due to (1) attractive yields, (2) asset backed, (3) active second hand market (4) good asset quality as domestic banks refrain from providing facilities to the subprime market.

"We believe almost all banks would see a serious volume impact from this policy decision as the sector's median exposure to leasing stood at 8% by end September 2015. NTB, in particular would need a change in strategic direction as the bank's loan book concentration to leasing is as high as 24%," analysts said.

They noted that finance companies would be the clear winners/beneficiaries of this proposal, growing in both volumes and margins, although from a consumer's point of view, this will restrict access to low leasing advance rates, as banks generally quote low rates due to their access to low cost funds.

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Fish export ban : Rs. 23b annual loss: EU to decide by January

By Rohana Jayalal

Sri Lanka has lost considerable revenue on the export of fisheries products over the past few years due to the EU imposed ban.

Sri Lanka’s fish exports to the European Union make up 68 percent of its total fish exports, which brings in Rs. 23 billion annually.

The remaining 32 percent is sent to the United States, Japan and other non-EU countries.Fisheries and Aquatic Resources Development Minister Mahinda Amaraweera told the Sunday Observer that the recovery of exports will be a great step forward for Sri Lanka’s competitive fisheries products sector and keeping its global image.

According to EU officials Sri Lanka has fulfilled the regulations needed to meet European standards, to lift the ban.

A technical evaluation team from the EU arrived in Sri Lanka earlier this month to assess Sri Lanka’s progress in implementing its recommendations on the prevention of illegal, unreported and unregulated fishing practices.

Amaraweera said the Government was hopeful that the European Union will lift the ban on Sri Lanka’s fish exports before the end of the year.

The EU ban took effect in January this year over the failure of the previous administration to prevent local fishermen from violating international fisheries laws.

The Minister said the government had taken action to ensure that the fishermen complied with all the conditions laid down by the EU.

The government is awaiting the European Union’s assessment of Lanka’s crackdown on illegal, unreported and unregulated (IUU) fishing.

The EU had laid down 57 conditions, for Sri Lanka and 35 of them have been fulfilled. The 35 conditions fall under the 36 essential conditions and the Fisheries Ministry had ensured that all of them are met.

The time stipulated by the European Union for fulfilling these conditions ends on October 31.

“I took up the issue with EU officials during a recent visit to Spain. I also briefed them on how Sri Lanka was fast tracking the implementation process,” the Minister said.

The ministry had already installed Vessel Monitoring Systems (VMS) free on 1,615 multi-day fishing craft. The location of the boat could be monitored through the operation centre at the Department of Fisheries and Aquatic Resources, he said.

Recently, officials of the Indian Ocean Tuna Commission came to Sri Lanka to study the facts regarding the withdrawal of the EU fish export ban.

It is expected that the European Union will adopt a proposal to remove the fish export ban imposed on Sri Lanka after the representatives submit their reports to the European Parliament.

Minister Amaraweera said that Cabinet approval had been granted to amend the Fisheries and Aquatic Resources Act No, 02 of 1996 to impose penalties for the offences committed in international seas to conform with international standards, to determine the penalties regarding the quantity of fish and the size of the vessel at the time of the offence, to enhance the penalty for offences regarding import and export to five times the value of the quantity of fish, to introduce a method of administrative penalty which is absent in the current Act and to create a sustainable and responsible fisheries culture in Sri Lanka.

The Minister said that If needed, the government is ready to answer any questions the EU might have and to clarify its policy and plans to overhaul the country’s fishing industry.

Meanwhile, an European Union official said the ban on fishery exports to the EU will be lifted after further necessary steps are taken.

According to the official, the Council commended the steps Sri Lanka has taken to comply with the regulations of the Indian Ocean Tuna Commission.

“The council encourages the Sri Lankan authorities to take further measures necessary to address the shortcomings in the context of the EU legislation on illegal, unreported and unregulated (IUU) fishing,” the official said.

He said that the legal processes were slow, as the EU has to go through a rigorous evaluation process before taking the final decision.

Sri Lanka received a ‘yellow card’ or a strict warning in November 2012 before the ban was imposed, as the country was not complying with international rules on illegal fishing.

But the Council banned fish imports from Sri Lanka last year due to EU concerns that illegal fishing is environmentally harmful and unsustainable.

The EU expressing appreciation over the new government’s policies on improving human rights and strengthening democratic institutions, is seriously re-evaluating Sri Lanka’s call to grant the concession once again for exports to the EU and to lift restrictions imposed on the export of fish products.

According to records, Sri Lanka’s sea food exports to the EU Zone accounted for nearly 68 percent of its total sea foods exports.

Sea food exports declined from 21 million dollars in February 2014 to 11.2 million dollars in February 2015 a plunge of 46 percent while fisheries exports plummeted from 42.7 million dollars to 27.7 million dollars a reduction of 35 percent, according to records.

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People's Bank 3Q PAT grows 7.5%

Having ended 2014 on a high note, not only surpassing Rs 1 tn Balance Sheet but also amassing a number of global accolades, the third quarter results for People's Bank points towards the closing of a successful year by end 2015.

Having gained the best results ever posted in any 3Q by the Bank, all key performance indicators notch consistent growth paradigms, a testament to People's Bank's commitment to maintain an ethos of stability, strength and sustainability.

Profit Before Tax 3Q, therefore, stands at Rs 12.5 bn, well above the Rs 11.5 bn notched in the corresponding period last year with 8.5% growth.

Similarly, Profit After Tax also had a YoY growth of 7.5%, to post an impressive Rs 8.9 bn in profitability. This is compared to Rs 8.3 bn last year.

Chairman Hemasiri Fernando said that the Bank's emphasis on being the pulse of the people has been the underlying tenet for success.

"Balance sheet growth has maintained its phenomenal upward trajectory to stand at Rs 1.1 Tn, which shows the prowess we possess and the financial stability we have retained. Our Group too has done exceptionally well, showcasing PBT of Rs 16.9 bn compared to Rs 15.3 bn last year, reiterating that we have astutely mooted businesses within our Group that are sustainable and aligned with macro growth paradigms."

People's Bank's accent on being accessible and available to a wide demographic through nearly 740 branches and one of the largest ATM networks of over 2,500 well spearheaded by a team who take customer service to new realms has seen deposit mobilization continuing with its upward trajectory.

Total Deposits hence have grown by 9.6%. While the CASA Ratio stands at a prudent 47.3%, total deposits reached Rs 869.8 bn and the savings deposit portfolio, which yet stands as the largest in the country, is an impressive Rs 363.3 bn 3Q. Growth notched in savings deposits is a commendable 13.9% for the period December 2014 to September 2015. General Manager and CEO N. Vasanthakumar said, "The fact that we were able to increase our loan income and garner low cost deposits that enabled business growth is surely one of the positive dynamics that enabled us to showcase the good results."

He said net interest income growth stands at 62.5%, up from Rs 19.9 bn last year to Rs 32.4 bn this year, while total gross loans grew by 18.4% to Rs 811.4 bn. Return on Assets (before tax) is 1.5% while Return on Equity is 25.7%.

Having amassed a number of internationally prestigious awards including Bank of the Year at the European Global Banking and Finance Awards for two years consecutively and adjudged Sri Lanka's Best Banking Group and Most Sustainable Bank at the World Finance Banking Awards also for two years consecutively, Vasanthakumar points to People's Bank's deeply embedded values and ideals as being the fundamental for its success.

"We have never believed in being complacent," he said. "We've always been a pioneer and because of this, we are on constant quest to raise the bar.

This means that from our service standards, to network reach for greater accessibility, to innovative products and services, People's Bank is always striving to be the best. Into this equation, we have augmented our IT platform, where our 16 million customers are given products and services in real-time.

We recognize that the entire world is moving into a digital age and that means that we must be up in front, leading the way.

State of the art IT initiatives are already being implemented on a sophisticated framework which undoubtedly will soon make People's Bank the Most Digitalised Bank in Sri Lanka."

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