Emergency regulations and Government of Sri Lanka’s (G.o.S.L.’s) diplomatic blunderings have made it difficult to get the West to remove its travel advisories on the island.

At a ceremony held to mark the rebranding of Sri Lanka Tourism (S.L.T.) On Tuesday, President Mahinda Rajapaksa appealed for the removal of those advisories on the grounds that the war is over.

A Sri Lanka Tourism Promotion Bureau (S.L.T.P.B.) source told The Sunday Leader that though G.o.S.L.’s firmness in dealing with the terrorist issue despite international pressure needs to be commended, he however said that it could have had been handled more diplomatically.

He said that G.o.S.L. should have had been more judicious in dealing with the West on this issue, as it was not only Sri Lanka’s biggest tourism market, but it was also the country’s biggest export market.

Developing countries such as India and China, which are much bigger than Sri Lanka in so many ways, are however more diplomatic in dealing with the West on controversial issues involving their countries, the source claimed.

Deputy Tourism Minister Faiszer Musthapha speaking to reporters said that they were working to get those travel advisories removed, but was unable to give a timeframe as to when this would happen.

Travel advisories include warnings to its citizens of the danger to life and limb of visiting a particular country or certain parts or part of it. Such advisories also cause travel insurance premiums to rise.

Travel advisories on Sri Lanka has mainly emanated from the West, Sri Lanka’s key tourism market, after the July ’83 riots that resulted in the L.T.T.E. launching guerilla attacks and exploding bombs in the south of the country.

However, though the war with the terrorists was over a month ago, those advisories still persist. The conduct of the war has irked several Western governments including the U.S.A. and U.K., the country’s two biggest export markets. U.K. is also Sri Lanka’s second biggest tourism generating market, and there is thinking in Colombo that it’s because of this that the West has been slow in removing such advisories.

S.L.T.P.B. Chairman Bernard Goonetilleke refused to comment when this reporter recently asked him whether the West, persisting with their travel advisories, despite the fact that the war is now over, was a means of resorting to economic terrorism on the country.

The delay in Sri Lanka obtaining the U.S.$ 1.9 billion standby facility from the I.M.F., where the West commands tremendous clout with this lending agency, is also directly linked to this acrimony. The West has also imposed aid cuts on Colombo due to alleged human rights abuse.

S.L.T.P.B. is at present on a campaign of meeting diplomatic heads of Western missions here in order to get those travel advisories removed.

It’s learnt that though their meeting with the U.K. High Commissioner met with a non committal response, their meetings however with the ambassadors of France and Italy were positive. These two markets at one time generated a good number of tourists to the island.

The aforesaid three European countries as well as Germany, Sri Lanka’s third biggest tourism generating market, are among the European countries that have issued travel advisories on Sri Lanka.

Meanwhile S.L.T.P.B. has delayed their visit to the German mission in Colombo as it’s without an ambassador at present, with the previous envoy, having had completed his term, leaving the country.

S.L.T.P.B. plans to meet the new envoy after he takes office.

The previous envoy in Colombo did not see eye to eye with the authorities here on alleged human rights abuse.

SriLankan Airlines, on top of the one year voluntary no pay leave offered to its employees, has also made an offer to its senior management to take a day or two days pay cut a month, an official told The Sunday Leader.

The company has some 5,000 employees.

Manoj Gunawardena, C.E.O. SriLankan Airlines said that he also comes under this bracket. He said that if 60% of the senior staff agree for this cut, it could be pushed through. In a circular to staff, Gunewardena said that these measures would result in a Rs. one billion cost saving to the airline.

These will be reviewed in March next year and if things turn for the better, the staff would be reimbursed, he told this reporter.

Gunewardena said that the recession together with competition had adversely affected pricings, with some sectors, such as the Colombo-London sector taking a 35% pricing cut to Rs. 65,000 a ticket. Those had adversely impacted on the national carrier’s profitability. He however expected things to look better this coming winter.

Gunawardena said that previously the airline was impacted by rising oil prices, but now it were price competition and falling demand, especially from the fourth quarter ended March 31, 2009 that was impacting it. He said that their audited results for the financial year ended March 31, 2009 was not yet ready, but did not expect them to look good.

The company made a Rs. 5.8 billion loss in the first quarter ended June 2008 in the 2008/09 financial year according to Gunawardena’s staff circular.

"But just as things began to look good, a fresh challenge loomed. The global economic crisis is now upon us. And it has already caused an adverse impact on global travel. It hit us in February 2009 and our passenger sales have been hit hard since then. We now expect a loss rather than breaking even in our fourth quarter (January to March 2009). This setback our performance for the financial year 2008/09. As it stands, the best projections for 2009/10 predict a deficit that is the same as last financial year. But last year’s deficit was due mainly to high fuel costs. Having a similar deficit this year is simply not good enough," the circular further said. Gunawardena however said that despite adversity, they were currently carrying a 75% load factor on all the sectors that they operate.

Sri Lanka currently has 15,000 guest rooms that work out to being able to take upto 650,000 tourists annually. The industry targets to bring in 2.5 million tourists by 2016 now that the war is over. Currently tourist arrivals hinge between 400,000-500,000 annually.

Banks’ bad loans are increasing as a result of falling exports that are hitting export industries, compounded by a rise in credit cards defaults, but at the same time the bourse is on a bull run (though it was seemingly faltering last week).

This is a paradoxical situation.

The over-arching problem here is that the Government of Sri Lanka (G.o.S.L.) is broke and to make matters worse, G.o.S.L. revenues are falling, whilst at the same time its debt is rising, resulting in a worsening economic scenario.

Sri Lanka needs outside assistance to bail it out in the worsening economic scenario.

In this connection, Central Bank of Sri Lanka’s (C.B.S.L.’s) much talked of I.M.F.’s U.S.$ 1.9 billion standby arrangement is yet to see the light of day, though they have been talking about it from around three months ago, since March of this year to be precise, but not even a cent has been received thus far.

And now, in an apparent case of sour grapes, C.B.S.L., on the back of some U.S.$ 190 million received in investments in Treasury bills outstanding after the end of the terrorist war last month says that the country can do without any I.M.F. money.

Whether that is an irresponsible statement to make only time will tell.

Undoubtedly C.B.S.L. Governor Ajith Nivard Cabraal is banking on the war win, after 26 years of suffering, that this change for the better that the island is now experiencing would also strengthen its external finances.

The bourse, in sporadic instances is now experiencing net foreign inflows, though Sri Lanka born, but U.S. based Raj Rajaratnam, who manages several foreign funds has been on the selling side, which translates to foreign outflows, thereby causing a hit in the country’s already depleted reserves.

How be it, bolstering of foreign inflows into the stock market has largely been due to the entry of two new funds, one U.S. and the other U.K., after the war end.

Now that peace has dawned in the country, hopefully other funds too will follow, keeping up the bourse’s bull run and making portfolio investors richer.

Nevertheless, according to banking industry sources, signs are that the banks’ non performing loans (n.p.l.s) will continue to rise, despite the seeming good times ahead for the country.

Banks’ n.p.l.s in the three month period from December 31, 2008 to March 31, 2009 rose by 25%, from Rs. 100 billion to Rs. 125 billion, constituting 7.2% of the banks’ total loan portfolio, up from the earlier 5% as at December 31, 2008.

Among the other reasons adduced to the rise in n.p.l.s is the collapse of unregulated finance companies like Golden Key. Golden Key alone used to disburse around Rs. one billion monthly as interest payments to its depositors. This money, according to Sri Lanka Banks’ Association Secretary General Upali de Silva was used to settle housing loans taken by those depositors’ from banks.

But now that source of income is not there, hence the rise in housing loan defaults, which as a consequence contributes to a rise in banks’ n.p.l.s.

One way of mitigating this problem is by lowering lending rates, which the C.B.S.L. is trying to do, by cutting its policy rates, the rate at which it lends to banks, which is now down to 11%, with the latest rate cut of 50 basis points (b.p.s) announced at this month’s monetary policy statement, however being still high, when compared to central banks in developed countries virtually giving credit free to their banks, translating to our own C.B.S.L.’s overnight lending rate (policy rate) being still 1,100 b.p.s higher than its counterparts’ in the developed world’s lending rates.

Local banks say that once they reduce their deposit rates, the reduction in lending rates too will follow. A banker from D.F.C.C. Bank speaking at a seminar recently, where this reporter too was present, said that their lending rates to a developed industry such as the mini hydro industry was as high as 25% last year. He however said that a silver lining is that rates are now coming down.

If, its lending rate to a developed industry such as mini hydros was as high as 25%, one may only shudder to think at what rates they lent to the other seemingly not so viable industries and to consumers.

But hopefully a start has been made, and a key to its continuation, of making rates still lower is to contain inflation, a step which C.B.S.L. is taking through its open market operations that mops up excess liquidity in the system.

But what is the position of depositors in companies like Golden Key who have had their entire savings wiped out and thus are unable to service their bank loans? Two problems crop up here: Rise in banks n.p.l.s and a part of the country’s citizens being made indigent.

Banks may have recourse to seizing the asset, in this instance the house or the property as a means to recover the outstanding loan, but such an action may result in the loan defaulter and his family being virtually thrown out into the streets in extreme cases, causing a social problem.

As such G.o.S.L. assistance may be needed to reschedule such loans, and/or to find alternate accommodations to such peoples whose houses and properties may be repossessed by banks in lieu of loan defaults.

The other problem is to try to find a panacea for bad loans caused by the collapse of export industries due to the global recession. Repossession here may not be the perfect solution as those industries are job creators, and repossession of such industries may result in jobs destruction, causing an even bigger social problem than the repossessing of houses and properties of loan defaulters.

Hereto G.o.S.L/ C.B.S.L. assistance may be needed to help banks to reschedule such loans. But where is the money is the million dollar, or more correctly the billion dollar question is the issue.

And, like the sword of Damocles, the U.S.$ 800 million hedging bill that is now before arbitration, and feeding, clothing, sheltering, resettling and livelihood restoration of some 300,000 I.D.P.s in the North are the other pressing problems confronting the G.o.S.L. and the country despite the war win.

Sri Lanka National Arbitration Centre (SLNAC) members include Romesh de Silva (PC)-Chairman, H.E.P. Cooray, Nimal Weeraratne and Kandiah Neelakandan (lawyers), Hiran de Alwis (Hony. C.E.O./Legal Adviser), Nimal Perera (Ceylon National Chamber of Industries), Jayasiri Samaratunga (National Construction Contractors Association of Sri Lanka), Ms. Pansy Joseph (Bar Association of Sri Lanka), Sujiva Samaraweera (National Chamber of Commerce of Sri Lanka), Mrs. Ranee Ratnayake (Women’s Chamber of Industry & Commerce), U.W.Rodrigo (Institute of Construction Training & Development), Mrs. Sarojini Dunuwila (Sri Lanka Banks Association (Gte) Ltd.), Prof. Chithra Wedikkara (architect/quantity surveyor), G.S. Chatoor(Ceylon Chamber of Commerce), Ziqufi Ismail (Sri Lanka Gem & Jewellery Association), Ranjan Nadesapillai (Sri Lanka Institute of Architects), H.D.Chandrasena ((Sri Lanka Institute of Quantity Surveyors), S.T.S. Arulananthan (Ceylon Hardware Merchants Association) and Dakshitha Thalgodapitiya (Sri Lanka Chamber of Construction Industry). On an average the Centre conducts 20 arbitration sittings weekly. SLNAC also has agreements with several international organisations.

LB Finance Plc, in the financial year (f.y.) ended March 31, 2009 saw gross income rise by 28.8% year on year (Y.o.Y.) to Rs. 3.6 billion, net profit before income tax by 56.3% Y.o.Y. to Rs. 555.3 million and net profit by 74.7% Y.o.Y. to Rs. 359.6 million.

The company’s chairman B.M. Amarasekera in his statement to shareholders said that the past year had proved to be one of the most challenging in the history of LB Finance, with several macroeconomic shocks that impacted on the business and on the financial services industry as a whole.

Managing Director Sumith Adihetty in his review said that it was another successful year for LB Finance despite difficulties in the macroeconomic environment. "Interest rates were high despite a slight reduction towards the latter part of the year which increased our cost of funds. Rising oil prices and fuel costs put pressure on collections and the collapse of unauthorized financial institutions in the recent past resulted in investor confidence in finance companies being shaken. However, I’m proud to report that this year there has seen a remarkable increase in both company revenue and profits, making the year under review the fifth consecutive year that we have grown in revenues and profits," he said.

"The solid performance during the year under review is testimony to us being proactive, given challenging market conditions, the strong strategic foundation that we have laid during the past few years, the innovative approach to business and most importantly, getting the basics right," Adihetty said.

"We continued to strengthen our asset quality and placed great emphasis on credit and asset management given the prevailing economic conditions during the year.

The government after a lapse of six years issued a 10 year maturing Treasury (T) bond to the market at Tuesday’s primary auction which fetched a weighted average yield (w.a.y.) of 13.47%, 672 basis points (b.p.s) more than the 6.75% w.a.y. fetched at the 2003 primary auction, market sources told The Sunday Leader.

"When there was only a ceasefire such bonds fetched a low yield of 6.75%, but now, where there is seemingly permanent peace with the war coming to an end, a bond of a similar 10 year tenure fetched a w.a.y. that was 672 basis points more than the 2003 10 year bond. One may interpret this to investor confidence still lacking in the market, but on the other hand, it may be a good buy, with the environment developing into a falling interest rate scenario, thereby creating an active sellers’ market for such bonds," the sources said.

It’s likely that the Central Bank of Sri Lanka (C.B.S.L.) may issue several such bonds of similar tenures in the not too distant future, they said.

However, though Tuesday’s tender originally had an offer for sale Rs. 500 million worth of such bonds, what was ultimately sold to the market was a mere Rs. 150 million.

"C.B.S.L. probably wanted to develop a yield curve, the present yield curve is only for 10 years, whereas in more developed markets they have yield curves spanning a period of 30 years, " the sources said. "It’s possible that the reason why C.B.S.L. sold a lesser amount may be due to the fact that the market was asking for a higher yield for the remainder," they said.

Meanwhile, T bonds of a five year maturity were trading at the 13% levels at Tuesday’s secondary market trading.

Other bonds that were offered at Tuesday’s primary auction were T bonds of 2013 maturity which fetched a w.a.y. of 12.96% in line with secondary market trading for this tenure and 13.07% for T. bonds of 2015 maturity, which maturities however hardly attracted any trading in the secondary market.

C.B.S.L.’s offer of a parcel of Rs. 500 million worth of T bonds of 2013 maturity at this auction was fully subscribed by the market, while in the case of the 2015 maturity, though Rs. 500 million was originally offered, C.B.S.L. allowed the market to subscribe to only Rs. 450 million worth of bonds of this tenure.

Meanwhile C.B.S.L. through its agent the Bank of Ceylon continued to defend the U. S. dollar at the Rs. 114.90 levels, by offering to buy the same at those prices, thereby preventing the greenback from depreciating below those levels.

An alleged racket involving poultry producers and middlemen has caused the current shortage in poultry meat, market sources said.

Maize farmers had had entered into agreements with poultry farmers to sell them a kilo of maize at Rs. 27. The imported maize due to the government’s duty component was around Rs. 47-48 a kg.

This duty component was to protect the local maize industry. Maize is an essential ingredient for poultry feed.

The middleman had then persuaded the maize farmer to increase his price to the poultry farmer to be almost commensurate with the imported price of maize, thereby disrupting the market, the sources said.

They further said that these buy back arrangements between the poultry farmer and the maize farmer were loose arrangements, allowing one to renege the other and vice versa, without fear of the "loser" hauling the other to courts as those were not firm contracts.

They also alleged that the current maximum retail price (m.r.p.) of poultry meat at Rs. 320 a kilo was unrealistic, adding that one supplier had had even made an offer to sell those at Rs. 290 a kg.

However, poultry farmers want the retail price of poultry meat increased from the current Rs. 320 a kg., on the grounds that the cost of production has gone up. But the government has refused to increase the m.r.p. of poultry meat.

Sources said that poultry farmers, some of whom act as outgrowers to a multi-national company (m.n.c.) with this m.n.c. itself being a key poultry meat supplier to the market, had also allegedly reneged on their contracts with local maize farmers and had imported the "cheaper sorghum" as a substitute recently, instead of buying the local farmers maize.

The government having had got wind of this had then banned or increased the duties on sorghum, thereby making it uncompetitive for poultry farmers to import this pulse.

This is the apparent reason for the shortage of poultry meat in the market, the sources said, adding that poultry farmers say that buying maize from the local producer is too expensive, and as such an agitation for an upward revision of the m.r.p.

"However, the irony is that a few months ago poultry farmers had allegedly told the government that the market was in excess of 100,000 kg. of poultry meat and had wanted it to facilitate the export of this excess to India," the sources said.

The government agreed, but nothing came out of this venture as the suppliers backed out.

They further said that a reason for imported pulses like sorghum and maize to be cheap compared with the locally produced maize was because Sri Lanka’s farm labour was higher than that of competitor countries such as Vietnam and China.

They however alleged that the m.n.c. in the local poultry market had invested in such agriculture farmland in countries like Vietnam and China, making it cheaper for it to import such feed from those countries and supply the same to the poultry industry here, rather than buy such feed from the Sri Lankan maize farmer.

Sinhaputhra Finance Ltd Chairman and Managing Director Ravana Wijeyeratne said that the changes in confidence level in banking and finance has been felt throughout the industry and positive vibes are now clear.

It has materialized in way of deposits inflows and soon the entire sector would be at full steam. Sinhaputhra along with many of its peers are looking north and eastwards to make early inroads. He holds a strong view that a healthy rapport and sharing of vital information between the regulated finance and banking houses along with healthy competition amidst them is of final benefit to all concerned, whilst the reverse is a detriment to all.

Wijeyeratne attributed the recent failure and losses in confidence levels to the stubborn non-conformity to accepted standards set out by regulating authorities by both "giants" as well as a few others, the delayed and ineffective actions towards the informal financial markets and the absence of the role of a truly independent auditor as factors, moreso than the global financial crisis.

He said that although the global crisis has had its share, "that had we as a nation addressed key issues early, we could have been at an extremely advantageous situation to ‘leap frog’ ahead of other nations and capitalize. This Wijeyeratne said is a lesson well learned, for it weaned out the weak, at times troubled even the best, but it kept afloat the stable towards reaching a safer haven for all savers and depositors. With the possibility of an FD insurance scheme being established, the confidence levels will only further increase.

Sinhaputhra, now in its 30th year of operations and celebrating its Pearl anniversary, reported that their depositors were rewarded at premium rates in the year ended March 31, 2009, and continued to benefit them with attractive rates even during the ensuing year. In the financial year ended March 31, 2009, the company paid our Rs. 412 million as interest benefits to its depositors.

The company encourages monthly interest earning deposits to ensure that depositors reap immediate benefit of their investments and to encourage the company to engage in monthly income generating investments such as Pawning, Leasing, Hire Purchase and asset backed loans. The company’s expertise in these areas have ensured healthy profits that have augmented its capital base to over Rs. 400 million. "The nature of our business restricts the company in engaging in longer term investments where income generation occurs after a time lapse," said DGM Operations Saliya De Alwis. As a key point, the company ensured much caution in investments in real estate and housing during the recent past, thus a pitfall was well avoided by Sinhaputhra Finance.

With positive confidence levels, the industry has felt the need to lower interest rates offered to depositors as a result of the easing of the liquidity situation. In any event as statutorily required by the regulatory body, Central Bank’s non bank supervision department, all registered finance companies (RFCs) have to fall within interest rate ceilings based on Treasury bill rates. There has been an impressive reduction in treasury bills, which augurs well for investing but less advantageous to savers. Therefore, effective July 1, 2009, most RFCs in Sri Lanka will be offering considerably lower interest rates. Investment Promotions Consultant Michael Cooke add that certain depositors who have thought wisely have locked in their funds for longer terms thus not being affected by the rate fall. AGM Risk and IT Pandula Aluwihare pointed out that RFCs as a sector holds on to the least risk arising asset bases such as Gold and vehicle stocks which are either in their direct custody or can be taken in at points of default. Companies that have been in operation for many years have recovery processes and methods well adapted to meet challenging situations which they would have learnt from 1987-88, height of the LTTE activities and in the early months of this year.

Low exposure to the housing and real estate market, credit cards, loans and business overdraft accounts were all positive factors to ensure risk mitigation and liquidity at a time that this was paramount. Sinhaputhra has been proud to engage itself in a variety of CSR efforts ranging from eye care, blood donation and health camps, donations to the Sri Lanka Army and Kandy General Hospital, Supplies to IDP camps and several others. AGM Administration and Establishment Mrs. Susan Gunawardena said that all these allows our employees to remain conscious and sensitive to those who are in need, and she noted the enthusiasm amonst the staff to partake of these projects.

Vallibel Finance, the newest financial entity born to the renowned Vallibel Group, recently completed two triumphant years in the industry; success has thus far partnered every venture of the Vallibel Group, and Vallibel Finance too seem to have followed course as seen by results posted for the year ended March 2009.

Achieving an overall growth in terms of assets, profit, income and customer deposits in spite of challenging economic times and multi-dimensional competition, Vallibel Finance is reported to have made the Group’s vision of bringing in a robust new player into the financial sphere come true.

During the concluded financial year, the Company achieved a significant 57% increase of Rs.1.55Bn in its asset portfolio comprising hire purchase and leases. Maintaining its growth momentum the Company was also successful in bringing down its Non-Performing Loans (NPL) to a healthy 3.51% which is lower than the 7% industry average. This was due to prudent and pragmatic credit evaluation and effective recovery processes set in place.

Vallibel Finance’s gross interest income of Rs.119 mn. in financial year 2007/08 grew by an impressive Rs.357 mn., which is a 198% increase. Company gross profits too followed course, recording a Rs.146 mn. growth, up by 164% over last year’s profit of Rs.55.6 mn.

Although the past year was a testing one for the country’s financial sphere and financial entities were regarded with mistrust, Vallibel continued to successfully draw in investor deposits even amidst economic turmoil; Company deposit collection increased by 73%, from Rs.473 mn. to Rs.820 mn. during the year. Customers continued to place their trust in the Vallibel name, robust start and the momentum that followed course, which it has been successful in maintaining throughout.