Apr 092014

Sri Lanka is on course to achieve macro-economic targets in the near-medium term, and focus must now shift towards longer-term targets up-to and beyond 2030, according to Central Bank of Sri Lanka (CBSL) Governor, Ajith Nivard Cabraal.

“We can clearly see that the country is on a much better trajectory than it has ever been in the past and as we move closer to our targets for 2016. The macrofundamentals have become much more predictable, therefore it is now the right time to start looking at targets from 2020 to 2030,” Cabraal stated.

He made these comments subsequent to the launch of Central Bank’s Annual Report for 2013 yesterday.

Cabraal went on to state that the country would have to make structural adjustments to the economy in order to drive itself through middle-income status. However, he reiterated that low-level inflation would remain a priority despite remaining non-committal on the outlook for interest rates going forward.

“We will continue to ensure that inflation is maintained at its current low levels and interest rates are one of the primary tools we have in controlling inflation.

“Currently we believe that interest rates are at appropriate levels and the CBSL will continue to monitor this area and respond as required,” he noted.

Lowered interest rates and its impact on retirees living on their savings, in addition to the possible onset of drought and its impact on the agriculture sector and food price stability were among near-medium term challenges highlighted by Cabraal.

“We believe that private sector annuity products must now be developed in order to meet the needs of retirees and these products will have to find innovative methods of delivering returns above those of interest rates,” he stated.

Touching on credit growth, Cabraal noted that private sector credit had declined through the start of 2014. However, he anticipated a pick up through the second half of the year adding that attracting private equity funds to the country would play an important role in credit growth.

“Total money supply remains at the right levels and we expect it to pick up in the second half. The CBSL is keen to see private equity funds operate in Sri Lanka and would like to see all well managed companies gain access to such funding in order to help them develop and compete internationally,” Cabraal added.

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Nov 292013
CB Governor calls private sector to strengthen governance
Sri Lanka’s corporate sector must take more steps to strengthen its governance provisions and avoid lobbying for undue business advantages, CBSL Governor Ajith Nivard Cabraal said.

“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.

Oct 042013
Amana planning CSE listing this year
Amana Bank is planning to list shares on the Colombo Stock Exchange (CSE) before the end of this year.

A company representative told Mirror Business that preparations for listing are currently underway, reiterating that more information with regard to the listing would be announced in the coming months.

In the past, Amana Bank has periodically stated that steps were being taken to list as per CBSL regulations.

The Central Bank of Sri Lanka (CBSL) required all private banks to be listed on the Colombo bourse by 31st December 201,1 in order to enhance banks’ ability to raise additional capital in a more transparent manner, with a view to improving governance through market discipline.

The listing requirements were issued parallel to increased minimum capital requirements as part of a larger policy from the CBSL to improve the domestic banking sector’s ability to withstand internal and external shocks.

Jul 012013
CIFL LIQUIDITY ISSUES: CB appoints People’s Leasing as managing agents
The Central Bank of Sri Lanka (CBSL) has appointed People’s Leasing and Finance PLC as Managing Agents of Central Investments and Finance PLC.

The appointment was carried out under section 25 of the Finance Business Act No. 42 of 2011 which empowers the CBSL to appoint a person to manage the affairs of a company where it is of the opinion that the company has been following unsound practices.

A release from the bank cited the “prevailing liquidity and management issues of CIFL” as the primary rationale for the appointment adding that People’s Leasing would be expected to improve the financial status of CIFL within a reasonable period of time under the close supervision of the CBSL.

The appointment of People’s Leasing is the latest development following a poor performance during the 6 months ended September 2013 when the company recorded a loss of Rs. 31 million, against a profit of Rs. 5.6 million in the previous year.

Jayanth Wickremeratne was subsequently removed from his position of CEO at CIFL. However the company was still forced to endure a run on deposits eventually leading to a cash infusion of US$ 12 million from Touchwood Group Chairman, Roscoe Maloney.

Maloney was reported to have assured the CBSL that the highest standards of management would be brought in to CIFL with a greater focus on microfinance and SMEs following his appointment to the Board of Directors

With the appointment of a managing agent, the CBSL directed the present Board of Directors of CIFL to extend their fullest co-operation to People’s Leasing in order to resolve the current crisis being faced by the company.

The Board of Directors will also be held responsible for the settlement of liabilities of depositors and other creditors prior to the appointment of the Managing agent.

Jan 062013
CB further loosens up exchange controls
Extending the measures to liberalize the foreign exchange market in Sri Lanka, the Net Open Position (NOP) limit, which is the open dollar position of licensed commercial banks (LCBs), was increased as a whole (banking industry) by as much as 85 percent to reach 120 percent by the Central Bank of Sri Lanka (CBSL), with effect from last Wednesday.

This is amongst a number of exchange relaxation measures listed in the Road Map 2013.

Also known as the foreign currency exposure limit, which differs from bank to bank, was previously capped at 64.7 percent. Raising the threshold is an attempt to liberalize the exchange controls and thus, will provide some form of a leeway for the LCBs in terms of collecting and keeping foreign currency with them than before.

“Raising the foreign exchange NOP limits will provide LCBs more flexibility in managing their foreign exchange transactions. Further, the limits on forward market transactions will also be relaxed with effect from today,” said Ajith Nivard Cabraal, the Governor of the CBSL, unveiling the policy document for the New Year recently.

The main risks to the financial system from the foreign exchange market arise from the impact of excessive volatility in the exchange rate on the NOP in foreign exchange of commercial banks. There is also a possibility of a potential contagion effect as problems in one commercial bank could spread to others.

At a function held at the atrium of the CBSL, Cabraal said that several derivative products would also be allowed to be developed within the broad guidelines that will be issued during 2013.

At present, the only derivative product available in Sri Lanka is the Forward Rate Agreements to hedge the foreign currency risk. However, it is expected that new derivatives such as Options, Foreign Exchange Swaps and Interest Rate Swaps would also be made available this year providing multiple options to hedge forex and interest rate risk.

Outlining several other exchange control policy relaxations he said, “Time restrictions on forward foreign exchange transactions will be removed, while a new investment account for non-residents, amalgamating several types of investment accounts currently maintained at LCBs will also be introduced with effect from today.”

Apart from the above, a new Inward Remittances Distribution Account which can be used as a clearing account to disburse earnings of expatriate workers was also introduced.

The Road Map 2013 further allowed foreign borrowings by companies for investment and business purposes under the ‘External Commercial Borrowing Scheme’. The current limit on overseas investments by residents will also be increased but the CBSL did not provide a particular limit.

Criteria for permitting selected non-banking entities to engage in foreign currency deposit business are expected to be introduced. Besides, i nward remittances through mobile phones will also be facilitated.

A mechanism to change foreign currency through ATMs of LCBs will be introduced, while fund transfers involving shipping companies, port operations and harbour services will also be facilitated.

This policy easing was announced at a time when several exchange control policies had already been relaxed by the Budget 2013, where the role of the exchange controller was dispensed with, when LCBs and corporations borrow from overseas. (DK)

Dec 272012
BMI downgrades Lanka’s 2013 GDP growth
Sri Lanka’s full year real GDP growth forecast for 2013 was downgraded to 5.4 percent from the previous projected 5.9 percent, implying that the ongoing slowdown is to intensify in first half of 2013, before growth starts to pick up in the second half, according to a Londonbased, independent research and credit rating agency.

“Heading into 2013, we are less convinced that Sri Lanka’s economic growth is headed towards any sort of material recovery from the ongoing slowdown. On the back of our 2013 growth downgrade, we have adjusted our forecasts for Consumer Price Inflation (CPI) and the Central Banks’s policy rate,” international credit risk rating agency Business Monitor International (BMI) said in its ‘Sri Lanka Business Forecast Report for Q1 2013’.

According to the data released by the Department of Census and Statistics this week, Sri Lankan economy grew at 4.8 percent in the 3Q12 (nearly a 3-year low) and the Central Bank of Sri Lanka (CBSL) revised the growth projections down to 6.5 percent from the earlier 6.8 percent for 2012.

Nevertheless the CBSL targets a growth of 7.5 percent in 2013 above the 7.2 percent projection for Developing Asia.

BMI further stated that they were now penciling in more aggressive disinflation and more dovish moves by the CBSL.

For 2013, BMI has downgraded their average CPI forecast to 7.0 percent from the previous 8.0 percent, and has downgraded end 2013 policy rate projection to 8.50 percent from 9.00 percent. “The island’s economy is still feeling the pinch on multiple fronts; rising credit costs, the weak Sri Lankan rupee and the fragile state of the global economy. Crucially, leading indicators continue to paint a bleak outlook for the economy,” BMI noted. With price concerns gradually coming off the table, BMI believes the primary focus of the Central Bank’s policies over the next 12 months will be fixed on economic growth.

“We are projecting 125 basis points worth of easing in 2013, taking the Reverse Repo rate to 8.5% by end 2013,” BMI predicted while acknowledging much of the macroeconomic imbalances being ironed out. “Taking into account our view for monetary easing going forward, we believe that these dynamics favour an outright bullish stance towards the country’s local debt. We reiterate that the country’s public debt profile has markedly improved over the years,” the report said.

While the country’s overall business environment remains mediocre from a PanAsian perspective, BMI said that they could not ignore the rapid and dynamic changes taking place in the regulatory framework, which indicate that its business environment is making significant strides which in turn should help to sustain the country’s foreign direct investment boom.

Dec 232012
Every Lankan shoulders Rs.300, 000 debt: CBSL data
The average national debt shouldered by each Sri Lankan has risen by 25% to reach Rs. 308,171 (US $ 2,371), from end of last year’s Rs.245, 980 (US $ 1,892), the monthly economic statistics released by the Central Bank of Sri Lanka (CBSL) showed.

Referred to as ‘Debt Per Capita’, in economic terms is calculated as total outstanding government debt divided by the mid-year population of an economy. According to the latest figures by the Department of Census and Statistics, the population in 2012 is 20,277,597.

The total outstanding government debt which stood at Rs. 5,133 billion last December increased by Rs. 1,115.6 billion to reach Rs.6,248.9 billion during the first eight months of this year. The total domestic debt increased by Rs. 449 billion, up 16 percent to reach 3,253 billion and foreign debt by Rs. 666.5 billion, up by 28.6 percent to record Rs. 2,995.8 billion during the period.

According to economists, high debt cost amid slow growth in export earnings (8.3% YoY) against growth in imports (11.2% YoY) in the first nine months could lead the country in to a foreign debt trap situation, as the country might opt for foreign borrowings to service earlier debt, and as a result the foreign debt servicing cost (capital + interest) is also expected to surge substantially.

The Budget 2013 projected a fiscal deficit of 5.8% of GDP proposing to rely heavily on domestic sources (83% of total deficit which amounts to Rs.507.4 billion) to finance the deficit while Rs.143 billion and Rs.445 billion is expected to be incurred as capital repayment and interest respectively.

Nevertheless according to the budget 2012, the government has exceeded the borrowing target for the full year which was Rs. 1,104 billion. This demonstrates the poor fiscal performance where the budget deficit reached to 6.44% of GDP last September whereas the full year target is to achieve 6.2%.

On the banking sector, based on economic indicators released for October 2012 by CBSL’s Statistics Department, the total loans & advances of commercial banks have grown by 26.5 percent YoY in September to reach Rs.2, 205 billion. This is a reduction from the 28.5 percent YoY growth in August.

The banking sector credit grew at a rapid pace in 2011 above 34% and as a result interest rates were raised and 18% credit ceiling was imposed in February 2012 to contain growth and avoid the overheating of the economy. However in a surprised move, CBSL last week cut policy rates by 25 basis points and announced the lifting of the credit ceiling by the year end to probably oil the wheels of economic growth.

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