How can a foreign citizen without taking the oath of loyalty to the country function as the CB governor and continue to sign Sri Lanka's currency notes,” …
This was the first time Central Bank notified the public of the maximum interest rates on deposits as the earlier practice had been to inform the top management of the finance companies mostly on a quarterly basis.
The Central Bank said the maximum interest rate that could be offered for savings deposits accepted or maintained shall be 7.58 per annum.
The maximum interest rate that could be offered for fixed deposits accepted or renewed for a maturity period of one year or less should be 11.01 percent per annum.
If the maturity period is over one year and up to three years, the maximum interest rate should be 12.01 percent per annum and if the maturity period if over three years, the maximum interest rate should be 13.51 percent per annum.
Finance companies are allowed to pay an additional interest rate of one percent above the maximum rate, in the case of savings or fixed deposits by senior citizens over 55 years.
According to analysts, this is a step in the right direction by the Central Bank though it is long overdue to make the public aware of the official interest rates that could be paid by finance companies within the legal framework they are operating in.
Thousands of Sri Lankans have been duped by finance companies—some licensed by the Central Bank—offering interest rates way higher than the rates the Central Bank had fixed.
“I believe this is very good move by the Central Bank, if they continue go public with the rates every three months or so. Then the people could guess if somebody is offering interest rates higher than the official rates, there’s something fishy going on with that company,” a finance sector analyst said.
The CB Assistant Governor C.J.P Siriwardana told a Bank Directors’ Symposium that steps had already been taken to implement BASEL III in line with other countries. Singapore is also set to adapt this third Basel Accord from next year.
“Capital and liquidity measures under BASEL III will be implemented starting from 2014,” he said.
Currently Sri Lanka’s banks maintain adequate capital under the Pillar 2 of BASEL II which was issued only in July this year. As at September 2013, the Core-Capital Adequacy Ratio (CAR) stood at 13.6 percent while the Total CAR was at 15.8 percent against the minimum requirements of 5.0 and 10.0 percent respectively.
However both the ratios were down from end 2012 Core-CAR of 14.0 percent and Total-CAR of 16.0 percent with banking giant Bank of Ceylon in the spotlight for most for their Total-CAR deterioration (11.4 percent) this year.
Though BASEL III was developed by the Basel Committee on Banking Supervision in response to the financial crisis, some argue BASEL III still inherits some of weaknesses in Basel II, as the concept compels banks to hold more capital against risky assets.
It is argued that most of the fundamental problems that were responsible for the global financial crisis, had already been identified with Basel I and Basel II, but Basel III has failed to offer solutions for many of them.
With regard to risk protection in Basel III, the challenge was to reduce unforeseeable risks, whereas Basel II focused mostly on the foreseeable ones.
Sri Lanka’s Central Bank (CB) will implement the third and the latest installment of Basel Accords— BASEL III beginning 2014, requiring the banks to …
“I have been in the government for eight years and the private sector for 32 years, so, I have experience in both. To be frank, I don’t think there is much difference in terms of governance standards between the two.
“I may not be popular for saying so but we have seen on many occasions when the private sector requests many undue advantages. Sometimes after meetings one or two approach you and ask for an edge over other companies.
“These are common occurrences and we don’t talk about it usually but these are governance issues which our country faces. Therefore, it’s not only the government but the private sector also that needs to strengthen their governance provisions to be more honest and broad-based,” Cabraal told a full house of private sector giants at a recently held event at Ceylon Chamber of Commerce.
Commenting on risk management in business, Cabraal urged Sri Lanka’s private sector to take a more conservative approach to profits and reinvestment in order to ensure the sustainability of profits over the long term.
“Reinvestment is vital because you don’t know where the next shock will be. Global situations can be so volatile, so you will understand that there will be shocks. Whenever there is a shock, the private sector comes to the government and asks for help.
Where is the government going to give help from? They have to take it from someone else and give it to you.
My message therefore is that your economic performance and financial performance also have to have roots in the sustainability of your profit making. You have to make sure you have reserves to meet that rainy day when it comes,” Cabraal advised.
He went on to state that companies which are capable of successfully navigating bust cycles in a business through prudent risk management would be the ones which are also capable of effectively managing boom-cycles, thereby ensuring their long-term survival.
“In good times always put something back so that you don’t have to come to the government and ask for help when there are floods, droughts, or war in other countries.You are now strong enough and the country is moving into a new era of development. So, managing your risk is important. Profits aren’t only for that year but have to be sustained,” he added.
“By respecting the law and embracing these new conditions, we’re showing the world that we’re a different breed and that we’re sufficiently sensitive to all factors in making our transition to a middle-income country.
In doing so, we can proudly say that we made the transition while respecting the law, the country, the environment and maintaining our ethics, Cabraal concluded.
In October, the CB surprised the markets by cutting both the Repurchase rate and the Reverse Repurchase rate by 50 basis points to multi-year lows of 6.50 percent and 8.50 percent, respectively, amidst calls by the International Monetary Fund (IMF) to hold the rates over inflationary fears.
“We believe the time has come for the monetary policy measures that have already been taken to take effect and we also believe within the next few months these changes would hold the economy in the growth momentum. So, we don’t think of any further changes now,” Central Bank Governor Ajith Nivard Cabraal told Bloomberg TV.
However, Cabraal noted that despite the short-term interest rates have already started to come down significantly, easing of medium and longterm rates has been rather slow.
Despite the recent monetary easing, the private sector credit growth remained below 10 percent during the year so far. The private sector credit grew by 34.5 percent in 2011, followed by another 23 percent in 2012.
In September, domestic commercial banks have disbursed as much as Rs.20 billion worth of private sector credit. “September figures were rather encouraging, so have the October figures been,” Cabraal remarked.
The broad money supply (M2b) in September increased to 16.3 percent from last year, up from 15.3 percent in August. The projected M2b for 2013 is 15 percent. In 2012, it was 16.2 percent.
Cabraal said the macroeconomic fundamentals are strong and the inflation is under control. But October inflation proved otherwise with the headline inflation rising to 6.7 percent, picking up from 6.2 percent a month earlier.
However, sending some level of certainty into the financial markets Cabraal said, “Next three to four months we will probably see consolidation of policy we have been advocating because we are satisfied with the results we have seen.
I don’t see a major shift in the policies during this period because whatever required has already been done,” he emphasized.
Since last December, the CB has cut policy rates by 125 basis points, reduced the statutory reserves ratios of the commercial banks by 2 percent and also asked the financial sector to reduce the penal interests charged on the default loans, in order to oil the slow-moving economic wheels.
“We would be a little dovish than hawkish. But we will watch the December and January figures quite carefully whether they are in place with what we have in mind for 2014,” Cabraal said.
Fitch cites this relative currency stability to a less open onshore capital account that provides insulation from volatile global capital flows, as well as the country’s increasing ability to tap offshore global bond inflows.
The Sri Lankan Rupee appreciated to a three months high of 130.55/60 to the dollar having appreciated 3.42 percent since August 28 when it hit a record low of Rs. 135.20. Meanwhile the Central Bank (CB) Governor Ajith Nivard Cabraal has said the Rupee is currently under appreciation pressure.
However Fitch cautioned of the strategy repercussions as it is adding to the stock of gross and net external liabilities and carries medium-term credit risks.
While appreciating the efforts by the authorities to tame the inflation to around 6.0 to 7.0 percent from a near double digit level in late 2012, Fitch said it does not project the growth to be in excess of 6.0 percent this year, rising only to 6.6 percent in 2014.
This is despite the CB’s somewhat ambitious growth target of 7.5 percent and 8.0 percent for 2013 and 2014 respectively.
Fitch however said this benign growthinflation story is not enough to improve country’s overall sovereign credit profile which is currently at BB-, (with a Stable outlook) three notches below the investment grade due to two reasons.
The first reason is the low progress made in narrowing the current account deficit in the Balance of Payments and the second being country’s failure in attracting much Foreign Direct Investments (FDIs) even after the end of the conflict.
Fitch expects Sri Lanka’s current account deficit to remain at 5.6 percent, a 1 percentage point improvement from a year ago. However the government targets to reduce the deficit to 4.7 percent of GDP this year.
Sri Lanka’s current account deficit is larger than all the other Fitch-rated Asian emerging markets, except Mongolia (B+) and is also larger than the ‘BB’ median current account deficit of 2.7 percent of GDP.
“Moreover, we see a rising external debt service burden limiting further improvement in the current account position in the year ahead,” Fitch opined.
The net FDIs to Sri Lanka since 2009 has averaged only 1.2 percent of GDP which is low in comparison to most of the regional peers, and thus has fueled the reliance on debtcreating capital. (DK)
The rupee has been trading at more than a threemonth high of 130.70/75 to the dollar, after having appreciated 3.42 percent since it hit a record low of 135.20 on August 28.
“There is actually more appreciation pressure than depreciation pressure at the moment,” Governor Ajith Nivard Cabraal told Reuters.
“The Central Bank is intervening when it thinks the rupee is appreciating too much.”
Currency dealers said inflows into the share market and government bonds amid weak importer dollar demand had helped boost the currency.
Some dealers had expected the currency to come under downward pressure after the Central Bank cut key policy interest rates to multi-year lows last week.
However, much to the dismay of the finance companies, Central Bank Deputy Governor Ananda Silva said the Central Bank had no plans to lift the cap on the penal interest rates at the moment, which was brought down to 3 percent from a high of 48 percent per annum.
“We can review it but not immediately because we introduced it recently,” Silva stressed adding that they need a reasonable time to identify the impact.
Last July, the Central Bank asked the banks and licensed finance companies to bring down the penal interest rates charged on default loans not exceeding to 2 percent and 3 percent respectively.
However, a cross section of the large and medium-sized finance companies Mirror Business spoke to noted that there had been only a very little reduction so far and they need time to make changes to their systems to fully comply.
“Generally there has been a reduction. One should understand that we have to do lot of changes to our systems and method of calculation which are currently being done,” said Group Managing Director LOLC Group Kapila Jayawardena, adding that discussions with the regulator is currently progressing.
However the Central Bank’s Supervision of Non-Bank Financial Institutions Department Director H. M. Ekanayake said no finance company had so far informed them about technical glitches hindering them to comply with the new ruling.
“This is a Monetary Board decision and we have sent them letters. So, this is a mandatory compliance for all finance companies,” he explained.
Meanwhile Commercial Credit and Finance PLC CEO Roshan Egodage too expressing similar sentiments to LOLC’s Jayawardena told, imposing caps on penal interest rates is not good and should allow the market forces to operate with no influence.
Further, when asked of the compliance on the penal interest rule by the banking sector, Deputy Governor Silva said most of the banks had reduced their penal rates. “We have already checked them. Most of them have reduced,” he affirmed.