Tourist arrivals growth higher in 2018 with record haul in December

• Sri Lanka ends 2018 with 2.33 million tourists, up 10.3% over 2017
• Though missing 2.5 m target growth in 2018, highest since 2016, comes following 3.2% gain in 2017
• December arrivals highest ever of 253,169

By Charumini de Silva

Tourist arrivals grew at a faster pace in 2018, despite missing the 2.5 million target thanks to a record haul in December, official data released yesterday confirmed.

Sri Lanka ended 2018 with 2.33 million tourists, up by 10.3% over 2017, in which year the increase was only 3.2%. In 2016, arrivals growth was 14%.

Tourist arrivals during December reached a record 253,169, up 3.5% from a year earlier. In terms of arrivals, February, March, June and November recorded the highest growth rates in 2018, while December had the highest number of tourists.

The record haul in December overshadowed industry concerns following the political instability following 26 October, which was a likely cause of the country missing the 2.5 million arrivals target by 166,204 in 2018. However, Sri Lanka has missed original annual targets since 2016.

Sri Lanka recorded its highest growth, 46.1%, in 2010, following the end of the near 30-year-old conflict. Thereafter, the growth trajectory saw a downward trend in 2011 and in 2012, posting a 30.8% and 17.5% growth respectively. However, in 2013, there was a positive growth of 26.7%, which subsequently went on a descending trend for four years.

Tourism Development Minister John Amaratunga said Sri Lanka would have achieved the originally-set target of 2.5 million arrivals target, or surpassed it, if not for the political upheaval in post-26 October 2018.

“A realistic, but ambitious prediction at this juncture is the four million tourist arrivals and $5 billion income this year, with Sri Lanka being declared top destination to travel in 2019 by Lonely Planet. Therefore, we are confident with the ongoing and upcoming promotional activities, Sri Lanka can achieve four million tourist arrivals and $5 billion income by end of this year. I pray and hope we will be able to go forward without any further obstacles or disruption from any quarter,” he told Daily FT.

Sri Lanka Tourism’s branding and marketing campaign ‘So Sri Lanka’ debuted at World Travel Mart (WTM) in London last November, and is planned to launch the much-anticipated global tourism promotion campaign as well as the newest logo in March this year at the ITB in Berlin.

The Minister expressed his confidence that the country would continue on the growth trajectory, capitalising on the newest promotional campaigns and initiatives underscored in the 2017-2020 Tourism Strategic Plan (TSP).

Amaratunga also reiterated that there was no other country in the world which could offer a travel experience in a compact island like Sri Lanka.

According to Amaratunga, Colombo has the opportunity to be seen as a hub for entertainment in the future, with the ever-burgeoning investment and development of tourism here.

“Indubitably, Sri Lanka has many diverse attractions that appeals to a wide spectrum of travellers from across the world. While we develop and further sustain the natural resources and attractions that are bountiful from a local standpoint, it is also important to consider expanding the local offering when it comes to the aspect of entertainment,” he added.

Amaratunga also said while the Government initiates the policy framework, and provides an advantageous environment for growth, it is the responsibility of all stakeholders to work towards achieving these goals, which will set the pace to bolster Sri Lanka’s tourism offerings.

He said they hoped to promote home-stays, where small-scale businesses would receive some share of the benefits from tourism to uplift their livelihood and rural economy.

The Minister also noted that this could mean that tourism will be the number one foreign exchange earner in the near future.

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Sri Lanka to be 'brutal' on finance companies that lose capital

ECONOMYNEXT - Sri Lanka will act fast to resolve finance companies that fall short of capital, Central Bank Governor Indrajit Coomaraswamy said., which had led to large holes in balance sheets and collapses, ending a the practice of procrastination or regulatory forbearance.

Finance companies in future will have to boost capital quickly when required.

"If finance companies don't, we will have to take regulatory action. We will have to be brutal when we apply that," Governor Coomaraswamy told reporters.

In the US, the policymakers took away the discretion and the Federal Deposit Insurance Corporation, a resolution agency now acts quickly, because delays expanded the capital shortage and the gap between deposits and assets widened.

It was easy to find a buyer when the capital shortage was small, and even if there were no takers, the FDIC had to put in only a small amount of cash in a liquidation, when a lender was closed as soon as capital fell below a pre-determined threshold like 200 basis points.

The US has thousands of independent banks, dating back from its free banking era and also when branch banking was prohibited and a number of banks fail each year.

When the housing bubble fired by the Federal Reserve collapsed in 2008/2009, 140 banks coming under FDIC mandate failed, another 157 failed the following year.

At end-September 2018, the ratio of capital held at finance companies in Sri Lanka to cover risks (capital adequacy) fell to 11.1 percent from 13.2 percent a year earlier.

Because finance companies give loans to riskier clients than ordinary banks, they need higher capital buffers, according to some analysts.

Central Bank regulations introduced in July 2018 call for finance companies to have at least 10 percent capital adequacy. By July 2019, capital adequacy has to increase to 10.5 percent, eventually requiring 12.5 percent July 2021 onwards.

Analysts say Sri Lanka will need to legislate a threshold like 8 percent to effectively end regulatory forbearance.

Coomaraswamy said another step existing finance companies could take is to merge with peers to meet the minimum capital levels, since having over 40 finance companies in the country is 'ridiculous', although the central bank will not force firms to take either option.

There was a spurt of new finance company licenses issued during the Rajapaksa regime. Several shadow banking institutions also failed at the time.

The current problems in firms like The Finance and ETI Finance, date back to the forbearance period.

"Non-compliance will result in restrictions on deposit and business expansion and, where necessary, winding up of businesses," Coomaraswamy said.

"Therefore, it will be necessary for finance companies to give priority to capital augmentation plans in the near future," he said.

"The change in the regulatory posture of the central bank will result in early interventions against noncompliant, distressed and high risk finance companies."

Many finance companies have primitive IT systems which are not capable of complex risk management.

Bad loans across finance companies were 7 percent at end-September 2018, up from 5.7 percent a year earlier.

Coomaraswamy's hard hitting stance amidst concerns raised by officials that some that some finance companies are ignoring regulations, rights of depositors and risk management practices to please wishes of shareholders.

Coomaraswamy said central bank officials are closely monitoring and talking with other at-risk finance companies to stabilize them.

He said there is little risk to Sri Lanka's economy if finance companies go bust, as they hold only 7.9 percent of the total assets in the financial sector.

"This long tail of very vulnerable finance companies are in turn a very small part of the total assets,"
Coomaraswamy said.

"Some larger finance companies are robust, and are as strong as banks."

"Having said that clearly there can be a contagion effect if there is instability in some institutions," he said.

Coomaraswamy said a deposit insurance scheme is settling what the companies owe their depositors.

Sri Lanka to tighten ownership limits in banks

ECONOMYNEXT - Sri Lanka will tighten share ownership limits of Sri Lankan banks along with stricter qualifications for key management positions to improve governance, the Central Bank Governor said.

"We believe that share ownership in banks needs to be broadbased to strengthen corporate governance and to avoid ownership concentration, dominance in the boards, conflict of interest and risks associated with related party transactions," Governor Indrajit Coomaraswamy said delivering a monetary policy road map for 2019.

"Therefore, the existing requirements on share ownership will be reviewed and certain additional measures will be brought in."

At the moment a single individual or company, acting with related parties, can own up to 10 percent a bank, which could be increased to 15 percent with special permission from the Central Bank.

There are also some legacy ownership stakes in some banks.

Coomaraswamy said quality of appointments to banks will be made stricter in the future.

"Fit and proper assessment criteria for appointment of directors, chief executives and key management personnel of banks will be strengthened further to appoint the most suitable and qualified individuals to the top positions in banks," he said.

"Only persons with proven track records of good conduct and financial integrity would be considered for such appointments," he said.

However, the government is the biggest stakeholder of some listed banks, controlling between 10-35 percent of some private banks through state financial institutions and a pension fund.

In the recent past, controversial persons have been appointed to the boards of 'private' commercial banks where state agencies had large stakes.

Sri Lanka Treasuries yields ease at auction

ECONOMYNEXT - Sri Lanka's Treasury bill yields eased at Wednesday's action with the 12-month yield falling 21 basis points to 10.99 percent, the state debt office said.

The debt office, which is a unit of the Central Bank, offered 7 billion rupees of 60month bills and accepted 4,705 million dollars of bids at a weighted average yield of 9.95 percent down from 9.99 percent on December 19.

The debt office offered 8.5 billion rupees of 12-month bills and accepted 10,795 million rupees of bids.

There were no sales of 3-month bills. (Colombo/Jan02/2018)

Sri Lankan rupee ends near record low; shares edge higher

Reuters: ** The Sri Lankan rupee ended near record low on Wednesday due to continued outflows of foreign funds mainly from government bonds, as political uncertainty dented investor sentiment.

** The currency fell 19 percent in 2018, making it one of the worst performing currencies in Asia, as heavy foreign outflows from government securities weighed on the local currency.

** The rupee traded at an all-time low of 183.00 hit on Monday against the dollar before ending at 182.80/183.00 per dollar, compared with 182.70/90 in the previous session, market sources said.

** The local currency has weakened about 5.4 percent since Sri Lanka’s political crisis began on Oct. 26.

** The country’s central bank will continue to adopt an exchange rate policy, with cautious interventions at times of excessive volatility in the forex market, central bank chief Indrajit Coomaraswamy said on Wednesday, launching 2019’s economic policies.

** The policy is designed to maintain the competitiveness of the exchange rate and support the rebalancing of the current account, thereby supporting a gradual buildup of foreign exchange reserves as an external buffer, he added.

** President Maithripala Sirisena appointed a cabinet of ministers from his rival party on Dec. 21 after he was forced to reinstate Ranil Wickremeinghe as prime minister, 51 days after he was sacked.

** The political crisis is expected to ease, though uneasy relations between the two men could cause fiscal problems, analysts have said. Parliament has approved 1.77 trillion rupees ($9.39 billion) to meet the first four months of expenditures in 2019 and avert a government shutdown from Jan. 1.

** Foreign investors were net buyers of 19.2 million rupees ($105,032.82) worth of shares on Wednesday but they have been net sellers of 13.4 billion rupees worth of stocks since the political crisis began. The bond market saw outflows of about 67.6 billion rupees between Oct. 25 and Dec. 26, central bank data showed.

** Last year, there were 22.8 billion rupees of outflows from stocks, while government securities suffered a net 159.8 billion rupees of outflows through Dec. 26, the latest data from the bourse and central bank showed.

** The Colombo stock index ended 0.16 percent firmer at 6,062.20 on Wednesday, The bourse lost 5 percent in 2018. Turnover was 211.5 million rupees, well below last year’s daily average of 834 million rupees.

** Credit agencies Fitch and S&P downgraded Sri Lanka’s sovereign rating in early December, citing refinancing risks and an uncertain policy outlook.

($1 = 182.8000 Sri Lankan rupees)

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Rashmi Aich)

New senior leadership at JKH

With the retirement of chairman Susantha Ratnayake on December 31st 2018, further to 4 decades of service at John Keells Group, JKH announced the following appointments, with effect from January 1, 2019.

Krishan Balendra as chairman of John Keells Holdings PLC and Gihan Cooray will assume office as deputy chairman in addition to his role as Group Finance Director of John Keells Holdings PLC.

Krishan Balendra was appointed as deputy chairman of JKH on January 1, 2018 and as an Executive Director of JKH in November 2016. He is also the former chairman of Nations Trust Bank PLC and was previously the president of the Leisure and Retail Industry Groups of JKH. Balendra joined JKH in 2002 as Head of Corporate Finance after stints at UBS Warburg, Hong Kong in Investment Banking and Aitken Spence Sri Lanka in Corporate Finance. Balendra, a former chairman of the Colombo Stock Exchange, holds a law degree (LLB) from the University of London and an MBA from INSEAD. He is also the Honorary Consul General of the Republic of Poland in Sri Lanka and a Member of the Main Committee of the Ceylon Chamber of Commerce

Gihan Cooray appointed as Group Finance Director of JKH on January 1st 2018. He is the chairman of Nations Trust Bank PLC and is an Executive Director of JKH since November 2016. Cooray holds an MBA from the Jesse H. Jones Graduate School of Management at Rice University, Houston, Texas. He is an Associate Member of the Chartered Institute of Management Accountants, UK, a Certified Management Accountant of the Institute of Certified Management Accountants, Australia and a diploma holder in Marketing from the Chartered Institute of Marketing, UK. He serves as a Member of the Sub-Committee on Economic, Fiscal and Policy Planning of the Ceylon Chamber of Commerce. www.island.lk

MBSL Midcap Index released

In a pioneering move, Merchant Bank of Sri Lanka & Finance PLC (MBSL) constructed a Stock market Index: the ‘MBSL MIDCAP Index’, which measures the aggregate price level and price movements of medium size companies listed on the Colombo Stock Exchange (CSE).

The index which came into operation in the Year 1999 is revised annually and looks at the Middle Range Market Capitalization, Liquidity and the Profitability of the firms to be included in the MBSL MIDCAP Index.

MBSL MIDCAP Index is used as the benchmark index by individuals and institutional investors who prefer growth but are prepared to with stand only conservative levels of volatility in their equity investments.

It can be used as the benchmark index for the introduction of MBSL MIDCAP linked index funds. MBSL MIDCAP Index generate valuable signals for portfolio managers for switching from larger-cap more sensitive stocks to midcap less sensitive stocks with more growth potential in response to changing capital market conditions.

The MBSL MIDCAP Index focus in profitability helps to screen stocks with better future prospects that will cross to higher market capitalization in the coming year. MBSL MIDCAP Index which is in effect from January 1, 2019 and the criteria for selecting the 25 stocks of the index remained unchanged.

They are; Middle Range Market Capitalization as at November 30, 2018, Liquidity based on number of trades during the year and Profitability within the last two years.

When calculating the midcap index for the previous year (2018), stocks were selected from the market capitalization range of Rs. 2.38 billion to Rs.23.85 billion and with the changes of ASPI the midcap range is defined for the year 2019 as Rs. 2.24 billion to Rs. 22.39 billion.

Based on the above criteria the MBSL MIDCAP index 2019 includes the following stocks representing 09 sectors.
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