Business

Nawaloka team in Dubai for Galadari Bros 56% stake

A high powered team from the Nawaloka Group of companies comprising its managing director Jayantha Dharamadasa and finance director Sunil Piyawardena are currently in Dubai to negotiate for the 56% stake in Galadari Hotel, Colombo held by the Galadari Brothers of the UAE, market sources said.

Galadari has issued shares of 185 million.

 Recently, the Nawaloka Group bought the 24% stake in the Hotel held by the Treasury for Rs 843 million. This transaction comprised the changing of hands of a total of 44.4 million shares at a price of Rs 19 a share.

The sources further said that according to unconfirmed reports, the Nawaloka Group was looking at a price of around Rs 22 a share in their negotiations with Galadari. However, sources close to the the Nawaloka Group were tight-lipped about the expected sales price for the finalisation of this transaction.

The Hotel carries a debt burden of Rs 4.5 billion- that it owes to the Galadari Brothers, the investors, personally.

However, sources close to Nawaloka were confident that the company would be able to wrangle through these seeming roadblocks and make a successful buy, despite these liabilities that the Hotel carries.

Sources said that it was a perception of the market that when Nawaloka bought the Treasury's stake in the Hotel, that the next step of this local company would be to negotiate a successful deal with the Galadari Brothers, if such a deal had not already been made, in order to gain a controlling stake in this five star city hotel.

The Hotel, which is listed in the Colombo Stock Exchange's Default Board, saw its shares close at Rs 17.25 at the end of Friday's trading, 25 cents more than its previous closing price. Meanwhile, the team from Nawaloka is expected to return to Colombo tomorrow.

Sathosa revival in doubt

The now defunct Cooperative Wholesale Establishment  (CWE) Retail Ltd. (CWERL) will require a capital injection of Rs one billion if it is to be resuscitated, Commerce Ministry Secretary S.Wirithimulle said.

The CWERL functions under the Commerce Ministry. "The CWERL carries a Rs 700 million debt that it owes its suppliers and another Rs 300 million debt to the Bank of Ceylon," CWE sources said. In addition its monthly salary bill for its 2.500 employees is Rs 35 million, they added.

The CWE, the precursor to the CWERL and commonly known as Sathosa, was established as a state run entity in 1949 to provide the consumer with essential food items at a reasonable price. But this objective was seemingly shattered when a consortium of private sector companies which was given its management in 2003, withdrew from the CWERL due to cash constraints, labour problems and the government not allowing it to raise money from the market through a rights issue in order to fend off its liquidity crisis.

The sources further said that even if the CWE was operational, it needed to make a monthly turnover of Rs 500 million in order to meet its monthly salary bill. But this target was not achieved, they said. "Even under private management its turnover did not exceed Rs 300 million," they added.

Since June, the CWE's 3,500 employees have been in the payroll of the Treasury. They are being paid a monthly dole of Rs 4,000, the sources said. " But when the CWE was functional, a minor employee's take home pay was between Rs 8-10,000, double the value of the current dole," they said.

The sources further said that with its shelves bare and with unpaid debts due to its suppliers, the chances of CWERL being revived especially by the government was slim.

CWERL with its 150 outlets has remained closed since June after a consortium of private sector companies comprising Richard Pieris, Ceylon Biscuits and Carson Cumberbatch which were given a 40% stake in the company for Rs 680 million plus management control in 2003, withdrew from CWERL in May due to labour problems engineered by JVP led unions and the Treasury not giving it permission to raise money from the market through a rights issue to run its operations. The JVP at that time was with the government.

The consortium had also requested the government to return the Rs 680 million paid by them and to once again take full control of the CWE as a response to charges made by Fernandopulle that they had been running the CWERL inefficiently. But the government has not responded to their request.

 Wirithimulle said that business magnate Don Harold Stassen Jayawardena has not been approached to take over the CWERL, in response to a question. Earlier, President Chandrika Bandaranaike Kumaratunga had requested Jayawardena to look into the possibility of reviving the CWERL.

 Wirithimulle  said that a Cabinet memorandum has been submitted by Minister Jeyaraj Fernandopulle for the government to take over the running of CWERL.

"Jayawardena is more interested in acquiring the 66% stake in Colombo Hilton currently held by the Treasury," the sources said. Jayawardena was not immediately available for comment as he was in Singapore. Fernandopulle was also not available for comment as he too was overseas.

New depreciation table hits equipment leasing

The government should recognize leasing as a development mechanism particularly suitable for the small and medium sized enterprises (SMEs)," said E.H. Wijenaike, Managing Director Central Finance (CF) Company Ltd., in his review of the Company's performance in the financial year (FY) ended March 31, 2005.

Towards this end, the government should adopt policies necessary to support the leasing industry so that it can continue to play a wider role in private capital formation especially in rural communities to facilitate and strengthen industrial development outside the Western Province where there is now an over concentration of development, he said.

Wijenaike said that the leasing industry has been the main source of finance to many rural and urban small-scale businesses such as workshops, agro-industries, bought-leaf factories, retailing and service industries.

He said that the new development strategy of the government advocates much support for the agricultural and the SME sector to the extent of establishing a specialized SME bank, with the priority sectors for SME lending having been identified as advanced technology, software and business process outsourcing, technological improvements, fisheries, gems and jewellery, agro-industries, services and SME exports. Duty free imports are contemplated for this purpose.

However, a further incentive to the entrepreneur by way of accelerated depreciation on plant and machinery would no doubt stimulate investment well beyond expectations, said Wijenaike.

He warned that the leasing business has come to a standstill because of the new depreciation table for equipment leases which have been extended from two to eight years in order for the lessor and the lessee to gain a 100% tax benefit on depreciation. Wijenaike said that inconsistent policy towards the leasing industry has had a significant impact on CF's ability to provide credit at reasonable cost to segments where it is most needed.

Wijenaike continuing said that the reduction in the annual depreciation allowances from 50% to 12.5% for plant and equipment as a result of the 2004 Budget proposals dealt the final blow to equipment leasing.

He further said that as lease rentals are taxed in capital repayments, the new depreciation regime requires lease structures be extended from the earlier two year period to eight years to make it profitable (ie tax neutral) for the lessor.

On the one hand lessors have neither the long-term funds nor the appetite to absorb credit and interest rates associated with an eight year lease, while on the other, lessees are reluctant to contract for such long periods.

He also said that the absence of a clear legal process with regard to repossession and the short commercial life of equipment (unlike vehicles which retain ready resale value) were major impediments that lessors grappled with when extending equipment leases.

Wijenaike said that the government needs to ensure uniformity in tax treatment across different markets so that there is no distortion in the cost of providing finance.

He said that nowhere is this discrimination more evident than in the tax treatment of financing used vehicles under the VAT system.

He said that a used vehicle bought under a hire-purchase (HP) agreement is exempt from VAT (on the purchase and hire instalment) although the same asset acquired through leasing would attract VAT at 15% without a corresponding input claim.

This makes leasing more expensive since the leasing company will have to capitalize the input tax paid on the purchase of the vehicle and collect it over the period of the lease.

Wijenaike said that from a commercial standpoint there is no difference between these two transactions as they both involve the sale by a supplier to the lessor/hire vendor and thereafter a lease/HP to the user.

"We therefore fail to see the need to treat a HP transaction differently from a lease for VAT purposes," he said. This distortion has severely restricted leasing business in the used vehicle market to the extent that almost all used vehicles are now financed under HP agreements, said Wijenaike.

Meanwhile, the CF Group in the period under review saw gross turnover increase by 7.5% to Rs 10.4 billion year on year (YoY), interest income by 5.1% to R s 2.2 billion and operating profits by 24.3% to Rs 986 million. However, net profit for the year declined by 8.8% YoY to Rs 749.8 million.

This decline was primarily due to the increase in the tax component by 500% YoY to Rs 257 million.

SME exporter 

K.W. Indika Dayananda from Unawatuna, a small time garment and soft toys manufacturer, exports to Japan, the UK (through a Sri Lankan who sells his products at week-end fairs) and to an American yogi instructor, belts and bags manufactured by him.

Dayananda who started his business two years ago and named it Pilseli, meaning that it is a place that sells appropriate clothes, uses material such as handloom cloth, hand woven cotton fabrics and buttons made out of coconut shells and sea shells.

The company provides direct employment to ten rural families and indirect employment to another 20. His product range includes blouses, skirts and pants. Having worked in several garment factories as sample room manager, he had wanted to start his own business after seeing handloom collections at Barefoot and other reputed outlets, an EDB communiqu‚ said.

Rupee appreciates by 3.6%

The rupee has appreciated against the dollar by 3.6% so far during the year, the Central Bank (CB) in its Monetary Policy Review for August 2005 said.

CB said that due to higher private remittances, official inflows to the government and the benefit of debt relief, official international reserves have increased to around dollars 2,378 million as at end June 2005 from dollars 2,196 million by end December 2004.

CB in a press release said that having reviewed the recent economic developments and projections, the Monetary Board has decided to conduct open market operations aggressively to mop up excess liquidity from the market while maintaining CB's policy interest rates at their current levels.

It said that the growth momentum in all major sectors in the economy is continuing as expected at the beginning of the year. The Agriculture sector is expected to recover with the continuation of favourable weather conditions. Following the all-time high level in paddy production recorded in 2004/05 Maha season, paddy harvest in Yala 2005 is also expected to reach a high level.

 Tea and rubber production have recorded a strong growth in the first half of the year while coconut production has indicated a gradual recovery. The output of the Industrial sector has grown by 5.9 % during the first half of 2005 and this growth has been broad-based and balanced across export and domestic market-oriented industries.

Growth in the Services sector is continuing with major sub sectors such as telecommunications, tourism, port services and transport showing improved performance.  Tourist arrivals increased by 12.3%, from 50,525 tourists in July 2004 to 56,745 tourists in July 2005.

The expansion of external trade continued during the first half of the year.  Export earnings increased by 11.5 % during the first half of the year, reflecting a continuous improvement in all three major export categories.  Expenditure on imports increased by 10.3 % during this period. Private remittances have increased by 21 % during the first half of the year. Reflecting these developments, Inflation that continued to moderate during February-June 2005 due to the improvements in supply conditions as well as the monetary policy actions taken so far, has increased again in July 2005.

The point-to-point change in the Colombo Consumers' Price Index (CCPI) increased from 9.4% in June 2005 to 10.8% in July 2005, while the Sri Lanka Consumers' Price Index (SLCPI), which is available with a lag of one month, recorded a decline from 13.2% in May 2005 to 11.7 % in June 2005, on a point-to-point basis. Recent tax revisions by the Government would help contain further inflationary tendencies, even though soaring international petroleum prices continue to threaten price stability. 

The level of reserve money which is the principal operating target of monetary policy remains close to the expected path. The growth in broad money continues at around 20 % mainly due to the increase in credit to both the public sector and the private sector. The growth in money supply is expected to moderate with the monetary policy measures taken so far being gradually transmitted to the financial system.

Following the policy rate increases in May and June 2005, short-term money market rates have adjusted upwards and commercial banks have responded positively raising both lending rates and deposit rates.

Considering these developments, the Monetary Board has decided to conduct open market operations aggressively to mop up excess liquidity from the market while maintaining CB's policy interest rates at their current levels. CB will continue to monitor developments in monetary aggregates and other macroeconomic variables and adjust its monetary policy stance appropriately.

The release of the next regular statement on monetary policy is scheduled for  September14.

Dialog's Secure trading system

When Dialog Telekom (DT) made its debut on the Colombo Stock Exchange (CSE) on July 28, the company also launched one of the most convenient and secure mobile stock trading systems implemented so far in the whole of South East Asia, a press release said.

DT announced the launch of a mobile trading facility based on its GPRS portal in collaboration with CDAX - Sri Lanka's number one online trading service provider, the communiqu‚ said.

The Dialog Mobile Trading facility enables investors to trade in shares from their mobile phone utilizing GPRS and/or SMS bearer technology.  The release quoting DT CEO Dr. Hans Wijayasuriya said that their objective in introducing this product was to deliver an unprecedented level of Immediacy and proximity of the CSE to the individual investor. Investors are now empowered to make instant investment decisions while being on the move in Sri Lanka or overseas, he had said.

In order to trade shares on a mobile phone, Dialog customers need to download the J2ME based system to their java-enabled handset from the dialogw@p site and thereafter connect via GPRS.

The release quoting Dinesh Saparamadu, CEO, hSenid Software International - the developers of the software said that their solution will enable high players in the stock market to be more interactive and trade shares while on the move.

Asanga Seneviratne, CEO, Investor Access Asia - the developer of CDAX, Sri Lanka's pioneer on-line trading system said that CDAX Mobile is another step towards increasing investor accessibility to the CSE.

This is a significant milestone in financial trading in Sri Lanka, with three industry leaders Dialog, hSenid and CDAX joining hands. Investors can now manage their portfolio while on the move via a highly user-friendly facility with a real time trade ticker real time stock quotes and live order placement and confirmation facilities, the communiqu‚ added.

HS code for cinnamon

The acceptance of a separate HS Code for Sri Lankan  cinnamon which will be effective from January 2007, is one of the most important achievements that the Spices and Allied Products Producers' and Traders' Association (SAPPTA) has made in recent times, its Chairman Abdul Cader speaking at the SAPPTA AGM that was held recently said.

A release quoting Cader said that Cinnamon is the largest spice exported from Sri Lanka. He had further said that a separate HS code for cinnamon means that this would give the country an opportunity to regain what it has lost in the past.

Cader had however pointed out that Sri Lankan pepper exports have tumbled by over 3,000 tonnes compared to the previous year mainly due to the increase of pepper exports from Vietnam increasing by 24,000 tonnes compared to 2003.

It was also revealed that a matter of great concern to exporter members is the large amounts of VAT refunds that are overdue, causing additional costs to exporters as well as cash flow problems. The Association's interests span the entire spectrum of spices, including cinnamon, pepper, cloves, cardamoms, nutmeg, mace and vanilla, and other agricultural crops and derivatives such as cashew, arecanuts, cocoa, coffee, essential oils, oleoresins, herbal products and organic products.

 Events

WTO implications

A three day workshop beginning on Tuesday that aims at enhancing awareness among government officials, the business sector and civil society about the implications of WTO agreements on the economy of Sri Lanka and to assist the country in building the necessary capacity to address issues arising from its participation in the WTO will be held at the Distance Learning Centre, Colombo, a communiqu‚ said.

It will be conducted by the International Trade Centre (ITC) UNCTAD/WTO in conjunction with the Commerce Department. A key component of this programme involves building capacity through training on strategic market analysis, with special attention given to market access issues.

The speakers will be ITC experts using online systems that are now available in Sri Lanka, namely Market Access Map and Trade Map. Topics to be covered include 'analysis of international trade flows to identify trade potential,' 'analysis of tariff barriers to identify implications for exporters' and 'applying ITC's market analysis tools for the development of trade strategies.'

The workshop is organised by the EU-Sri Lanka Trade Development Project that is funded by the European Commission.

SME accounting

The latest developments in International Financial Reporting Standards

(IFRS) and the development of Accounting Standards for small and medium enterprises (SME) will be the focus of an international workshop that will be held at the Hotel Taj Samudra on Friday.

It is organised by the Institute of Chartered Accountants of Sri Lanka (ICASL) and the Institute of Chartered Accountants of India, under the aegis of the South Asia Federation of Accountants (SAFA) Centre for Excellence for Standards and Quality.

The workshop is meant for ICASL members, professionals, business leaders, capital market players, corporate governance activists and regulators.

It will consist of three presentations on 'Accounting Standard for SMEs.'  The presentations on Accounting Standards for SMEs and the update on the latest changes in the IFRS will be delivered by IASB Director and Patron of ICASL's Technical Division Dr Paul Pacter who is also the architect of the project to develop an accounting standard for SMEs.

The release quoting ICASL President Indrajith Fernando said that in today's global context, a transaction will be accounted for in one uniform way irrespective of where it takes place. Uniformity can be achieved only if the accounting standards are short, principle-based and bear clarity. With this objective in mind, the IASB has effected improvements to 13 International Accounting Standards (IASs). Since the National Accounting Standards of SAFA countries are based on IASs and IFRSs, it is important to obtain a clear understanding of the improvements effected to the 13 standards.

Reyaz Mihular, Regional Executive Officer for KPMG Middle East and South Asia (MESA)and KPMG's IFRS Head for the region will present the module on 'Improvements to IASB standards.'

Pacter who will make the presentation on the Accounting Standard for SMEs is the Director of Standards for SMEs at the International Accounting Standards Board, London and Director In the Global IFRS Office of Deloitte Touche Tohmatsu, Hong Kong.

Seminar on Sethusamudram

The Ceylon Chamber of Commerce will hold a seminar on "Sethus- amudram Canal Project: Implications for Business" at its ground floor auditorium on August 29, a press release said.  Members of the Sri Lankan Government delegation that visited India recently for discussions on the project and experts who have studied the project have been invited to address the seminar.

The seminar is intended to enlighten the business community on the progress made by the Governments of India and Sri Lanka on the proposed project and on the possible implications of the project on business to facilitate business sector to adopt appropriate strategies to face the implications more effectively, it said.

The 'Sethusamudram naval canal project' initiated by India has created much discussion and debate among government officials, environmental groups, business community and the general public both in India and in Sri Lanka. Diverse views are expressed on the implications of the project.

The following areas would be covered during the seminar: Sethusamudram Canal: Why is it Built? Implications on Shipping and Ports, Measures to cope with Navigation and Emergency, Impact of the Sethusamudram Canal Project on Fisheries, Potential Impact of the Project on Environment and Steps taken by the government to address the concerns of Sri Lanka.

The panel of speakers will consist of Rohan Abeywickrama (Director, Sathsindu Group of Companies), Dr. Krishan Deheragoda (Vice Chairman, Sri Lanka Ports Authority), M A R Kularatne (Chairman, Marine Pollution Prevention Authority) and A L Ratnapala (Assistant Secretary General, Foreign Affairs Ministry). Dr. Parakrama Disanayake (Chairman/CEO, Aitken Spence Shipping Ltd) will chair the seminar. The participants may clarify their issues from the expert panel of speakers and panellists during the open forum.

Educational sponsorship

By Sashini Seevaratnam

Darley Butler and Co., Ltd held a press conference on Thursday to promote its "Fostering Leaders of Tomorrow" programme which offers 25 students affected by the tsunami educational sponsorship.

This programme is being held to commemorate Darley Butler's 25 years as agents for Bic razors in Sri Lanka. It is open to those who will have passed the Year Five Scholarship exam this year and who are directly affected by the Tsunami.

The students will be selected with the aid of the Education Ministry, with five scholars picked from the North, five from the East and 15 from the South West.

 They will each receive Rs 1,000 per month from Year Six upto the Advanced Levels.

Senior Brand Manager Peter Anthony Pulle said that the programme was a way for Darley Butler and Bic to unite in "offering a gift back to society." He claimed that the whole process would be monitored to ensure that the deserving children received the money and that it be used for their future education.

 While Industry development takes backseat

DEA wants to increase number of directors in plan

B. Sarada M. de Silva, Chairman, The Spice Council  (TSC) and Ceylon Cinnamon Association (CCA) made a scathing attack on the Department of Export Agriculture (DEA) at the launch of Good Manufacturing Practice (GMP) Cinnamon Processing Centre at Dassanayake Walawwa Cinnamon Plantations in Kosgoda, Balapitiya recently.

He said that a salient point in a proposed five year plan formulated by the DEA for the industry, is to increase DEA's cadre of directors, deputy directors and assistant directors all most ten fold.

To fund this expansion indirectly, the DEA  has proposed a cess on cinnamon. Ultimately the poor smallholder has to pay for the benefit of a few officials, said de Silva.

"For us in the cinnamon industry enough is enough," he said. "I welcome the DEA or anyone interested in the spice industry to work along with TSC. Otherwise, with or without the DEA, TSC will take this industry forward," he said.

De Silva further said that the DEA is the government department specially designated to look after the spice sector. But the industry has received step motherly treatment from DEA for far too long. Cinnamon accounts for more than 55% of the value and volume of all spice exports consistently for the last 20 years, he said.

"For years the cinnamon industry has been lobbying DEA to invest at least 50 % of its resources in the cinnamon industry and appoint a senior deputy director based in Galle to be in charge of the development of cinnamon," said de Silva.

"Instead of implementing these proposals, the DEA has proposed the afore-mentioned five year plan which the spice industry has not seen nor were consulted," said de Silva.

He further said that out of the 25,000 hectares (ha.) planted under cinnamon, more than 75% is in the southern Province. "We have a series of problems affecting the cinnamon industry," said de Silva. The most important is the acute shortage of cinnamon peelers.

This has got worse after the Tsunami as peelers have migrated to other jobs in the construction industry. TSC has proposed that a crash programme to train peelers begin immediately and five members of the CCA, Kahawatte Plantations have offered their facilities to conduct this training.

"It is now up to the DEA to start the training," he said. De Silva further said that they have been lobbying the Government for a number of years to establish two cinnamon peeler training centres in  Galle and Matara.

He said that Galle has over 10,000 ha. and Matara over 8,000 ha. TSC has now taken the initiative on its own and has formulated plans to set up the first training centre in the Galle district. "All we need is about 20 acres of cinnamon land and funding to set it up. TSC will seek donor funding to finish this project," said de Silva.

He said that GTZ, Germany and The Competitiveness Programme of USAID are helping TSC in drawing  their future plans and to source funding to implement them.

He also said that this training centre can create jobs for the unemployed in the Galle district.

De Silva appealed to the Governor, Chief Minister and Deputy Minster to release 20 acres from Galagoda Estate, Madampe, Ambalangoda which has been acquired for a housing project for Tsunami victims.

This is one of finest cinnamon plantations and ideally suited to establish the training centre, he said. De Silva had also said that Sri Lanka has been producing cinnamon in unhygienic conditions on the floor for centuries.He had further said that this GMP Model centre is a project of the TSC to upgrade cinnamon processing to meet 'ever'demanding international food safety standards.

This is the first of its kind in Sri Lanka and a project approved and supported by the National Council for Economic Development (NCED) Export Cluster. Total cost of the project is over Rs. three million excluding the value of land. As a proposal of the NCED in the 2005 National Budget it is partially being funded by the Export Development Board to the value of Rs. one million.

He had also said that though a project of TSC, it has been taken forward and implemented by Wijith Jayatilleke a pioneering entrepreneur in the cinnamon industry.

He had painstakingly developed this centre, spending over Rs. three million and to a level well exceeding GMP standards required. Jayatilleke is also in a position to obtain the HACCP within six months of operations. There was an extensive effort that went into obtaining this internationally recognised GMP certification, said de Silva.

He further said that TSC will have its annual sessions on October 12. This is part of the World Spice Festival (WSF) organized by the Tourist Board, Tourism Industry and TSC from October 7-16. The concept of the WSF is to bring to Sri Lanka leading chefs from around the world and have a gourmet food festival showcasing Sri Lanka's spices.

For the Business Sessions in the Annual Sessions of the TSC, it has invited the Anandan Abdullah, Executive Director of the International Pepper Community to deliver the keynote address and for the Technical Session, Prof. Shaim C. Varshney from India a leading expert on steam distillation of Spice & Herbs essential oils. "The members in the spice industry will  benefit from the Annual session and I welcome all to participate," said de Silva.

Ceylinco records highest MDRT qualifiers

Sri Lanka's leading life insurer Ceylinco Life has produced 26  qualifiers to the Million Dollar Round Table (MDRT) in 2004, the highest number from a single company for the year, a press release said.

The company also announced that 28 of its sales officers have received  The International Quality Award (IQA), an important benchmark in the  Insurance industry, in a 'clear' demonstration of the high levels of  Professionalism encouraged by Ceylinco Life.

The first insurer in Sri Lanka to field representatives at the MDRT, Ceylinco Life had by the end of last year produced over 75 MDRT qualifiers, the largest pool of personnel from Sri Lanka to be represented on the elite global forum for top notch insurance professionals who meets annually in the USA.

"Professionalism has been one of the keys to our phenomenal success," Ceylinco Life Chief Executive Director R. Renganathan is quoted to have had said. "We are pleased to see that we continue to set the standards for professionalism in the local insurance sector."

Ceylinco Life was also the first insurer in Sri Lanka and South Asia to produce Chartered Insurance Agency Managers (CIAM), achieving yet another milestone in the insurance industry.

Twenty three representatives of the company's management have to date received the prestigious CIAM designation, the highest internationallyrecognized qualification for agency managers in life insurance.

CIAM isawarded by the Life Insurance Marketing and Research Association (LIMRA).

Ceylinco Life recently invested Rs 25 million to enhance customer  Service and efficiency by providing the latest in lap top computers to the company's sales force, in an initiative that will also contribute to professional development.

Ceylinco Life emerged as the industry-wide leader in 2004 following a record-breaking performance in premium income.

The company sold a  record 112,704 new policies in the year bringing its total premium income to Rs 3.962 billion and giving the company a corresponding market share of 31.5% in the life insurance segment.

Despite taxes, leasing, HP market grows

Under the envisaged new Finance Companies Act, it will be mandatory for every finance company to obtain a rating, LB Finance Ltd., in its Annual Report for the period ended March 31, 2005 said.

The company has signed an agreement with Fitch Ratings Lanka Ltd to carry out a rating process after the balance sheet date.

It also said that the government's 2004 budget introduced new tax regimes which have direct and indirect effects on the company's operations. One of the significant issues emphasised is that only a third of tax losses are allowed to be set off against the net profit for the period, LB said.

Despite this new tax regime imposed by the government in relation to the importation of vehicles, the market has continued to grow in both leasing and hire purchase, the report said.

Inspite of the competitiveness in the industry, the financial sector has also continued to grow more than any other sector of the economy, it said.

Meanwhile, LB Finance, for the 15 months ended March 31, 2005 saw gross income grow by 43.8% to Rs 779.2 million, compared with a figure of Rs 541.9 million recorded for the 12 months ended December 31, 2003.

Interest income during this period grew by 59% to Rs 677.4 million. This result was primarily driven by continued significant growth in advances as well as improved results in the recovery procedure of the credits, the report said. The management believes that hire purchase will play a vital role in the future operations of the company, said LB.

Net profit during this period grew by nearly 1,500% to Rs 48.4 million.

The Company's Managing Director Sumith Adhihetty in his review of the company's performance said that in the 15 month period under review deposit mobilization increased by 30% to Rs 2.6 billion.

The company was also able to reduce the interest cost in their deposit base, enabling them to be more competitive in their lending business.

LB's advances portfolio primarily  consist of leasing, hire purchase, pawn broking and mortgage loans. "With this product range we have diversified our advances portfolio from medium and small scale financing to micro financing and have built up a sustainable risk and reward base portfolio which has stability and return," said Adhihetty.

The company has recorded a redemption ratio of 87%. The higher the redemption ratio is, the better for the operation as this will enable LB to reinvest the money collected more frequently with new pawning customers and to earn more interest in recycling the money, the company said.

Meanwhile Adihetty said that total disbursements for the period under discussion was Rs 3.1 billion, a growth of Rs 1.4 billion compared to the previous year.

The main contributors to the growth were HP advances and pawning advances which have grown from Rs 21.29 million to Rs 737.95 million and Rs 743.89 to Rs 1,186.3 million respectively, he said.

During the reporting period, gross investment in leasing had increased by Rs 174 million, ending at Rs 1,646.5 million.

CRHL, newest player in market

Capital Reach Holdings Ltd (CRHL) is the newest financial services provider to enter the local market with its three subsidiaries-a leasing company, a factoring/small and micro lending company and a network of eight branches, a press release said.

Ajith Nivard Cabraal, a chartered accountant with extensive experience in the areas of business restructuring and corporate governance heads the new company as chairman. CRHL's director board has several qualified and distinguished names in the banking and financial sectors such as Mayura Fernando- chartered accountant (Managing Director), Daya Muthukumarana- banker and Sumant Batra-an Indian lawyer, where both are directors.

CRHL is due to introduce a range of products and services to the Sri Lankan financial market, the communiqu‚ said. They include portfolio management, taking companies public, arranging of private placements of debt and equity, management of companies, arranging and implementing management information systems and managing debt and equity issues.

The release quoting Cabraal said that the new holding company has also infused new equity capital into two ongoing businesses and thereby acquired controlling interests of Vanik Leasing Ltd (VLL) and Vanik Factors Ltd (VFL), together with its branch network of offices in leading outstation cities. These companies have been re-named Capital Reach Leasing Ltd (CRLL) and Capital Reach Credit Ltd (CRCL), while the branch network has been entrusted to Capital Reach Business Development (Pvt) Ltd (CRBDL).

Cabraal said that the main advantage of these acquisitions was that  CRHL has been able to harness the existing business potential of these ongoing businesses since these subsidiaries are already functioning profitably. The newly acquired companies are therefore expected to be profitable from day one.

CRLL has now developed a specialized product range that caters to the personalized needs of clients. Among such products are finance leases, hire purchase, operating leases and other loans. The company hopes to place an IPO after a year of its new operations and thereby further expand its equity base. The Managing Director (MD) of the company is Nalin Wijekoon (chartered accountant), while Ranjith de Silva-leasing specialist and Anusha Wijesinghe (lawyer) are the other directors.

CRCL also has a specialized product range and an islandwide branch network that caters to the individual needs of diverse clients. Among its products and services are domestic factoring facilities, personal small/micro group loans and the issue of letters of guarantee and performance bonds. CRLL's main strength lies in its personalized service, minimum documentation and the ability to provide a pro-active service to its clients. The company's MD is Kolitha Perera while S. Mudalige (lawyer), also serves on the Board.

CRBDL has a network of eight branches-Kandy, Galle, Matara, Nuwara Eliya, Ratnapura, Chilaw, Badulla and Kaduruwela. This network is expected to play a critical role in the realization of the corporate goals of the entire Group, as well as introduce new products islandwide.

Business forum

Kaira Technologies concluded a successful business forum in Colombo promoting awareness of its products and its formal presence in the country recently, a press release said.

 Kaira is a Singapore based distributor of IT components and related peripherals. It distributes AMD, ASRock, Logitech, Netgear, Sony Optical drives, Netgear and XFX in the SAARC region.

The release quoting Kaira's Rajesh Attal said that this was an opportunity for IT partners in Sri Lanka to get updated with the world's latest technological trends and products. Rukshan Jayawardena will be managing Kaira's operations and will be conducting road shows, training programmes and marketing support across the country. The Kaira Business Forum was a full day business forum consisting of two sessions.

 The first consisted of a technology seminar where international trends, new product innovations and emerging technologies were discussed. In the second session the channel partners took part in an interactive session, discussing  various aspects of business. The session witnessed partners learning new and innovative customer centric products and solutions.

Several products like the 7800 GTX chipset based graphic card from XFX, Mimo technology wireless product from Netgear and Sempron 2500+ in 64 bit from AMD were also launched on this occasion.

Regional Manager Kaira SAARC Operations Devendra Puri also spoke. ÿThe Forum saw a participation of more than 175 channel partners from Colombo.

IIHE's management degrees

The Imperial Institute of Higher Education (IIHE) was incorporated in Sri Lanka in October 1996 and is amongst the oldest institutions offering foreign degrees in Sri Lanka, a press release said.

Its mission is to provide comprehensive and accessible educational opportunities of the highest quality with international links, catering to the requirements of professionals, industry, commerce and public affairs, through an excellent academic and motivated staff.

Validated by the University of Wales (UoW), the Institute offers a BSc (Hons) in Business Management where the academic programme is designed so that the "academic" is intertwined with the "practical," enabling graduates to quickly make meaningful contributions as managers and leaders in industry and commerce both nationally and globally.

IIHE also offers an internationally recognised Masters in Business Administration which is validated and awarded by UoW, bearing a guarantee of the highest academic standing. This programme is also highly practical where participants apply theoretical knowledge acquired to real life situations using substantial case-study work.

In order to maintain the highest quality standards, UoW validates all its programmes by subjecting them to rigorous quality assurance to ensure that they are on par with the teaching and learning standards in the UK as required by the Quality Assurance Agency (QAA), UK. To this end, a panel consisting of representatives from the UoW as well as external examiners from outside Wales visits the Institute twice a year.

Degrees received through the IIHE are the same as the one received by students who are physically studying at the UoW, UK. As the degrees are awarded by UoW, graduates in Sri Lanka can opt to go to Wales for the annual graduation ceremony or attend the local graduation ceremony in Sri Lanka.

Graduates become members of the UoW Guild of Graduates. Out of 300 students studying for degrees at IIHE at present, 42 will graduate, which is the largest number to graduate at one time.

IIHE provides air-conditioned lecture rooms and offers substantial academic support to its students as well as facilities such as high-tech multimedia computer facilities with unlimited internet access to learning aids such as electronic journals and periodicals. The Institute's academic staff are highly qualified and experienced in their respective fields, with most having international post graduate qualifications. The IIHE can be accessed on www.iihe.lk

Room for more in insurance

Prudential Assurance Lanka Ltd (PAL) became Sri Lanka's fifteenth and newest insurance company to enter the country's largely untapped Life and General insurance markets, a press release said.

Dr Wimal Wickremasinghe (Managing Director/CEO) speaking at PAL's launch is quoted to have had said that despite the existence of a number of insurance companies in the country, the coverage of insurance, both in life and general was low, with the former being less than 15%. As such there was room for more insurance companies to operate in Sri Lanka.

Among its 'novel' products are 'Vinivida'-an investment protection plan, 'Naya Sahana'-a loan protection plan and 'Uththunga'-a family protection plan. These products have attractive and competitive premium rates, innovations and many rider benefits, the communiqu‚ said.

The company has qualified and industry experienced insurance personnel among whom are Fellow of the Chartered Insurance Institute (CII) and Chartered Insurer (London) Gnanasiri Talagala as General Manager (General), CII (London) Associate Chandrasiri Kevitiyagola as DGM (Life) and Samitha Sooriyarachchi (Marketing Manager).

Wickremasinghe said that PAL's prime objectives are to service customers and issue and dispose of insurance policies without delays together with the prompt payment of claims.

"In the field of General insurance business, we have an array of policies for both individuals and corporates," he had said. Among those are Fire and Allied Perils (private dwellings), home insurance, motor-vehicle insurance and personal accident and travel insurance for individuals.

The products on offer for corporates are Fire and Allied Perils (business premises), motor-vehicle insurance, cargo insurance, burglary, money and goods in transit, personal accident and surgical and hospital expenses.

PAL's Life insurance business is reinsured by Munich Reinsurance Company. In General insurance its reinsurers are Allianz Re, General Insurance Corporation, India, Mitsui Sumitomo, Best Re, Toa Re and Labuan Re.

The company's other directors are T.M.D. William (Chairman), J.S. Dissanayake (Deputy Chairman), Sriyal Dissanayake, D.L.W. Talagala, Nihal Fonseka and Vinnie Gunarathne.

Biz. Confidence holds

Business confidence continues to hold, despite extreme political instability and concerns over the cost of living, says the August issue of business magazine, LMD. This communiqu‚ was released prior to Foreign Minister Lakshman Kadirgamar's killing.

It said that the prediction of the previous edition of the LMD-ACNielsen Business Confidence Index (BCI) - that business confidence will take a severe beating in the wake of the events on the political front in mid-June - didn't eventuate.

The unique index, which tracks business sentiment each month, has - for all intents and purposes - remained steady since March this year. It has nudged up and down within a relatively narrow band of 107 and 123.

Yield rates continue to rise

Short term Government Securities and medium to long term Treasury Bonds continues to show the increasing trend in the primary market in the week ended Thursday , the Central Bank in a press release said.

 Market preference still rests with meduim term Treasury Bonds. During the week, total outright transactions reported by primary dealers amounted to Rs. 10.7 billion, of which Rs. one billion were reported for Treasury Bonds and Rs. 9.6 billion for Treasury Bills. The repurchase and reverse repurchase transactions by primary dealers continued to outweigh the outright transactions volume with Rs. 33.76 billion reported for the week.

The current week's yield curve moves beyond the five year maturity. Secondary market yield rates for four and five years maturities reported by primary dealers marginally decreased compared with the previous week, but overall yield curve for Government Securities remained on each other for current week and previous week. 

In the secondary market, Treasury Bills were traded from 9.11 % to 9.42 % levels while the Treasury Bond yield rates varied within the range of 9.58 % to 10.90 %. 

The yield rates for Treasury Bills at the Treasury Bill auction held on Tuesday  increased for 91 day, 182 day and 364 day bills by five, six and two basis points to 9.22 %, 9.28 % and 9.41 % respectively, compared with those of previous week.

At the auction, out of the total amount offered to the market, Rs. 9.73 billion Treasury Bills were accepted from the market. The balance Rs. 0.99 billion was purchased by the Central Bank.  There were no Treasury Bond auctions for the reported week.             

For this week (week beginning on August 21), Rs.9.62 billion out of maturing Rs. 9.88 billion Treasury Bills will be re-issued to the market on Wednesday  with settlement on Friday . The next Treasury Bond auction for Rs. one billion of 4 year maturity will be held on Tuesday  with  settlement on Friday.

Centre for value addition

The Sri Lanka Gem and Jewellery Association (SLGJA) requests the government to organize trade delegations to visit gem producing countries such as Madagascar, Myanmar and Tanzania, build closer ties with them and encourage them to bring rough stones for value addition and for sale in Sri Lanka.

Among the other issues were to remove VAT on the sale of jewellery for foreign currency and on jewellery manufacture, to have a one stop customs clearance point at the passenger terminal of the Colombo Airport to facilitate the clearance of goods and to revert to the earlier position where the miners auctioned their stones under the supervision of the National Gem and Jewellery Authority(NGJA). They were exempted of taxes except for 1% that had to be paid to the NGJA.

And removal of VAT in the import of gems, diamonds and gold which are the main raw materials used for the manufacture of jewellery and allocation of government funds of Rs 40 million, together with the SLGJA lab fund of Rs 100 million which is held in deposit by the NGJA in order to set-up a gem laboratory of international standards.

It said that as a result, Finance Minister Dr Sarath Amunugama  agreed to waive the VAT on gems, diamonds and gold and to allocate funds to set-up a gem lab.

Banking & Finance News

Sampath leads in low interest loans for SMEs

By Paneetha Ameresekere

Sampath Bank is considering loans for small and micro industries at very concessionary rates, said Sampath Bank's Manager - Development Banking, Nimali Abeyratne in an interview.

Sampath is a Participatory Credit Institution (PCI) for a new loan scheme called SMILE (Small and Micro Industries Leader and Entrepreneur) III, where a sum of Rs. 9 billion is available for disbursement at 9% p.a. interest.

Sampath has already disbursed a number of project loans in this short period that this loan scheme has been in operation. The maximum amount that can be taken for a project under the SMILE III programme is Rs 10 million. The loans under SMILE III are payable over a maximum period of  10 years including a grace period of two years.

 "Our development finance loans cover virtually every category - the agriculture, industry and service sectors," Abeyratne said.

The bank was actively involved in the  previous two credit lines under SMILE programme. Under the SMILE 1 programme, the fixed  asset value (excluding land and buildings)  of a loan applicant could not exceed Rs 10 million. Under SMILE 2 it was upped to Rs 14 million, and now under the current SMILE 3 programme it has been increased to Rs. 20 million, she said.

The gradual upping of an applicant's asset base for eligibility is proof that such applicants have benefited from previous programmes, and, as a result, was operating at a higher level both from a material and financial point of view, said Abeyratne. Increasing of the upper-limit in the asset base value is to make it possible for the beneficiary to continue obtaining loans under the new programmes that have come on stream so that he could further upgrade his facilities, she said. There have been several success stories, where the entrepreneur, whether it be a person involved in either the tea, rubber, coir, transportation or furniture sub-sectors, has actually progressed due to project loans obtained from Sampath Bank.

Abeyratne also said that under the SMILE 3 programme, loans for technical assistance (TA) could also be procured for an interest charge as low as 2% p.a.. The maximum amount available under the TA programme is Rs 2.7 million.

"If for instance an industrialist wants to upgrade his factory with the latest technology, he could apply for a TA loan," added Deshapriya Pieris, a Sampath Bank officer handling re-finance projects such as SMILE 3.

Another re-finance programme (that is how loans made available under such international lines of credit are described) to which Sampath Bank is a PCI is a scheme called the 'E Friends II' project where a sum of Rs 5 billion has been made available.

Loan interest charged under this scheme is 6.5%. The 'E Friends II loan programme is for eco-friendly projects, said Abeyratne. Loans under this programme are even available to finance the transplantation of companies, with the upper-limit fixed under this programme being Rs 50 million. Sampath is processing loan applications amounting to several hundred million rupees under this programme, said Abeyratne and yet another targeted industry under 'E Friends II is the polythene industry for recycling of polythene wastage. 

Sampath Bank is also a PCI under several other current refinance schemes such as  Renewable Energy for Rural Economic Development Project (RERED), Southern Province Regional Economic Advancement Project (DASUNA) the ADB funded Perennial Crops Development Project and the Plantation Development Project, SUSAHANA Loan Scheme, New Comprehensive Rural Credit Scheme (NCRCS) and Kapruka Ayojana for coconut cultivation.  

She also said that Sampath's development finance schemes reach the furthermost corners of the country such as Moneragala and Ampara.

"Our project lending covers both SMEs and large industries," said Abeyratne. "Our lending is based on the feasibility of  a project - collateral is secondary," she said. According to her what needs to addressed in project finance is awareness creation.

More often than not, the established entrepreneurs know about the various project finance (PF) lines that are on stream, but the problem is with new industrialists, she said.

Sampath Bank has been involved in PF  (or development finance as the bank prefers to call it) for the past 18 years and consistently organising seminars and awareness programmes especially in rural areas to educate the outstation entrepreneur about the availability of such schemes.

Sampath which has been involved in development banking since its inception in 1987, as statistics show, has been very strong in this sector, despite the fact that its core-banking activity is not project finance but commercial banking.

"Our 76 strong branch network spread virtually islandwide, complemented by not only a customer friendly, but a competent and professional staff, has been the key to Sampath's success in development finance," she said.

Abeyratne further said that in a recently concluded project finance scheme refinanced by the ADB, Sampath Bank fared well, utilising Rs 1.1 billion out of the total loan portfolio of Rs 5.6 billion distributed among several other participatory credit institutions (PCIs).

Sampath, at an interest of 9.9% charged on the loans disbursed under this scheme which was called Sahanya, was the lowest interest rate charged by a PCI in this programme.

Commercial Bank reports strong growth in first half of 2005

The Commercial Bank Group comprising Sri Lanka's benchmark private sector bank, its subsidiaries and associate companies, has reported strong growth in profits and other key performance indicators for the first half of 2005, despite a substantial increase in the effective tax rate and the continuing effects of the post-tsunami appreciation of the rupee against the US dollar.

In results released to the Colombo Stock Exchange (CSE) recently, the group said its income grew by Rs 1.381 billion to Rs 7.046 billion, a robust growth of 24.38 per cent over the first half of 2004. This was achieved mainly due to a 32.63 per cent growth in interest income to Rs 5.903 billion and a 25.88 per cent increase in other income to Rs 997.2 million.

The group reported a pre-tax profit of Rs 1.460 billion, an increase of Rs 355.6 million or 32.2 per cent, over the corresponding half of 2004. The group's post-tax profit of Rs 873.9 million for the period under review, reflected a growth of Rs 152.8 million or 21.19 per cent. This was after providing for an income tax liability of Rs 586 million as against Rs 383.3 million last year.

The group said the effective tax rate had risen from 35 per cent last year to 40 per cent in 2005 mainly as a result of recent changes in tax laws. Growth in pre-tax profit was achieved despite translation losses amounting to Rs. 290.3 million which had to be absorbed in the first half of 2005 as against a translation gain of Rs. 53.8 million for the first half of last year.

This unusual loss was incurred consequent to the sharp appreciation of the rupee against the US dollar resulting from the inflow of foreign funds to the country in the aftermath of the tsunami in December 2004.

Commercial Bank's Senior Deputy General Manager (Finance and Planning), Ranjith Samaranayake said the group was able to achieve strong profit growth by continuing to maintain a healthy growth in all key business areas.

The total deposits of the group rose to Rs 107.6 billion for the period under review as against Rs 98.6 billion as at December 31, 2004, reflecting a growth of Rs 9 billion or 9.12 per cent. Net Advances amounted to Rs 98.4 billion as against Rs 90.6 billion at end December last year, a growth of 8.55 per cent. The total assets of the group surpassed the Rs 150 billion mark and reached Rs 154.1 billion as at June 30, 2005, reflecting a growth of Rs 12.3 billion over December 31, 2004.

"The growth in advances, deposits and assets was achieved despite the shrinking effect of the assets and liabilities designated in foreign currencies as a result of the appreciation of the Sri Lanka rupee against these foreign currencies during the period," Samaranayake added.

Significantly, loan loss provisions recorded a decrease of Rs 47.4 million in the first half of this year from Rs 246.7 million in the corresponding period last year to Rs 199.3 million. This was even after providing for the additional provisions required under the Central Bank's 'Haircut' rule.

Another notable aspect was that operating expenses of the group at Rs 2.249 billion represented an increase of only 11.84 per cent, well below the growth of 15.45 per cent recorded in the net income of the group in the period under review. The group’s non-performing advances ratio continued to drop, recording five per cent (5%) as at June 30, 2005 as against 5.34 per cent at December 31, 2004. The provision cover of the group as at June 30, 2005 was approximately 52 per cent.

Referring to key performance ratios, Samaranayake said the bank’s return on assets, capital adequacy and cost income ratios are considered to be the best among the peer banks.

A feature of the group’s first half results is the fact that the share of profits from associate companies rose from Rs 18.8 million last year to Rs 48.7 million, a growth of 159 per cent.

PABC Bank impressive in 1H

By Marianne David

Pan Asia Banking Corporation Limited (PABC Bank) posted an impressive 28.9% growth in the first six months of 2005 with its assets base growing from Rs. 9,000 million to over Rs. 10 billion, evincing a growth of Rs. 958 million during this period.

The bank recorded an after tax net profit of Rs. 45.4 million against a profit of Rs. 35.2 million for the corresponding period in 2004 and pre-tax profits in the first six months of 2005 were Rs. 75.6 million, compared to Rs. 39.9 million during the same period in 2004.

The deposits of the bank grew to Rs. 7,449 million from Rs. 6,557 last year and advances increased from Rs. 6,052 million to Rs. 6,264 million. The net interest income improved by Rs. 48 million with a growth rate of 29.2%.

"There has been good progress this year, which is very satisfactory. We hope to make a profit of Rs. 100 million after loan loss provision and tax by the end of 2005," said Managing Director / General Manager / CEO, PABC Bank, R. Nadarajah.

The reasons for this level of achievement are the effectiveness of strategies that were put into place, the prudent course of action taken to enhance the profitability of core businesses of the bank and effective control over expenditure, Nadarajah asserted.

"We have taken steps to reduce the non-performing advances which are a drain in the bank's profitability. Thecapital adequacy ratio is maintained above the required levels and liquidity ratioshave also been satisfactory," he added.

During the first six months of 2005 the shareholders funds increased to Rs. 447 million due to re-evaluation reserves and the net profits of the bank in the first half of the year. Important ratios such as the cost income ratio also indicated a steady improvement over the period.

The bank intends to introduce new products during the second half of the year and also intends to further enhance the revenue from existing products to maximise the contribution to the bottom line.

The bank is in the process of introducing two information technology based products - internet banking and the cirrus enabled debit card - in the near future, in addition to a senior citizens account with unique features.

With the 'turn-around' trend that commenced during the first quarter for 2004, the bank continued its performance throughout the year and was in a position to achieve improved performance, mainly due to far thinking and effective strategies and business formulas introduced by the bank under the guidance of the board.

Focus on core business lines - namely corporate banking, retail banking, treasury operations and trade finance activities - started to generate the required revenue and operational profits to the bank, while strengthening the core business and key result areas.

A recovery drive was also launched to recover and reduce non-performing advances, which increased the revenue base further.

The bank re-launched its logo and changed its name in October 2004 as a long-term stratagem to face the future more aggressively and confidently.

The underlined objectives of this strategic move were to create a strong brand name in the market, reposition the bank in the consumer / customer's mind, enhance the business domain and enhance corporate identity.

The pay off line 'Your Bank' is a self-imposed challenge, which sees and treats each customer as an owner of the bank.

Maximising the advantages and capabilities of IT, the bank introduced SMS banking during the latter part of 2004, basically bringing banking to the thumbs of its customers. This SMS banking product was introduced along with other unique products such as 'Gedarata Mudal' (a home cash delivery product), mini credit card, re-launch of Lahiru (minor savings account) as Lahiru Plus with additional features and value additions and Foreign Exchange Services (with FES, the bank delivers traveller's cheques and foreign currency to the door step).

All Pan Asia Bank branches are online and most have Saturday banking and extended banking hours.

The cheque clearing process has been centralised and any cheque deposited, regardless of where it is drawn, will be cleared within one day if presented in Colombo. The benefit of reducing transaction costs is passed onto the clients.

Customers even have a 24 hour hotline number to report all concerns and suggestions and PABC is taking every step to enhance productivity and service levels

With speedier service, convenience, a host of functions and low costs involved, SMS banking is set newer standards keeping with PABC's vision to be the most customer preferred bank in Sri Lanka, the bank has made investments on enhancing its services with innovative technology.

The bank initially joined up with Dialog GSM and introduced SMS banking toits customers and has now entered into an agreement with Mobitel as well for SMS banking.

The bank believes that customers come first, and the profit follows and is in the process of developing more functions and features in order to provide an even more superior service to our customers under the 'e-wave' strategy.

The bank will also open two extension offices in Wellawatte and Wennappuwa in the near future.

With the Gedarata Mudal product catching on fast, the bank is also planning on making arrangements with a bank in Italy in lieu of its move to Wennapuwa. The customer service centre, which will be opened on August 25, is located on Chilaw Road.

Speaking about the locations of the new branches, Deputy CEO, Bradley Emerson said, "These two areas are heavily populated and signify potential for retail operations. This will also help the deposit base and liquidity of the bank."

In order to enhance the professional skills and to complement the initiative taken by the bank to expand, the bank has also employed the Deputy General Manager, Claude Peiris, who will strengthen the operations and have operational risk management in place.

The bank looks forward to the future confidently despite the macro economy challenges and has already taken steps to overcome such hurdles and challenges with determination and prudently designed, clear-cut strategies.

HNB's half year group pre-tax profit up by 40%

Hatton National Bank (HNB), Sri Lanka's largest private sector commercial bank, continued its impressive comeback by recording a 22% rise in pre-tax profits to Rs 676 million in the six months to June 2005.

The group too has delivered exceptional results with pre tax profits recording a 40% increase during the first six months of 2005 to Rs. 807 mn. Notable performances by HNB Securities Ltd. and HNB Stockbrokers Ltd. contributed to the overall group net profit after taxation of Rs. 648 mn during the period.

Commenting on the performance, HNB's Director/ Chief Executive Officer, Rajendra Theagarajah said, "We are extremely satisfied with the consistency in which two successive quarters have recorded such exceptional performance. The strategic redirection of the bank in balancing business growth with profitability, improving productivity, managing costs, and focusing on enhanced asset quality has been taken to heart by staff at all levels within the bank which has seen the entire network working towards these goals."

Net interest generated from interest sensitive assets has increased by 31%. The first half of the year 2005 has also seen the bank's total operating expenses entirely covered by net interest income from core banking activities. Net income of the bank which includes foreign exchange income, commission income and investment income in addition to net interest income, grew by 14% during these six months.

HNB has maintained its tight leash on costs with operating expenses increasing by a mere 8% during the period. Improved procurement procedures, advantage of economies of scale and pooling of common processes are some factors that have contributed towards effective cost management in the bank.

The 22% rise in profits has been achieved with an asset growth of just 4% during the first half of 2005. Effective balance sheet management coupled with controlled growth has contributed towards improved return and productivity of the bank's asset base. The bank's commitments and contingencies has also shown a 26% drop.

HNB continues its quest to improve its asset quality. The bank's loan quality has shown steady improvement with two key performance indicators, namely the NPA ratio and NPA cover having improved to 9% and 62% respectively in June 2005

"The December 2004 tsunami devastated many parts of Sri Lanka and unfolded human tragedy in a scale never seen before in Sri Lanka. Although about a dozen branches of the bank mainly situated in the affected areas performed below par, the rest of HNBs network performed above plan and offset any adverse impact. Close and continued attention by the decentralised regional/zonal management will ensure affected branches will turn around before year-end.

"Healthy capital infusion, sustained effort on recoveries, balanced loan growth, aggressive cost management and improved productivity has contributed significantly towards Fitch Rating Lanka upgrading its rating of HNB to 'A'  in July," Theagarajah added.

HNB's voting share closed at Rs. 80 end June, reflecting a 44% growth over December 2004 levels.