The Sunday Leader » Business

Liquidity Dries Up

sanjeewa — Sat, 04 Feb 2012 19:17:16 +0000

Rapid credit and import growth are placing pressure on market liquidity, a banking source told this reporter.
As a result bank deposit rates are being raised as a ploy to attract liquidity into the system so that that in turn could be lent at a higher price to meet increasing credit demand, he said. Even to obtain low cost liquidity from Central Bank of Sri Lanka’s (CBSL’s) reverse repo auction or purchase window to meet this demand is a problem as Government securities (Treasury (T) Bill and Bonds) have to be given as collateral to CBSL in lieu, he said.
CBSL doesn’t lend money for nothing, the source said. Such borrowings from the CBSL have to be supported with T Bills as security.
But with T Bills fetching lower yields than bank fixed deposits (FDs), which bank in its right senses would want to invest its money in low yielding T Bills when having to pay much more to a customer who has invested in an FD with a bank? he asked. They would rather invest such money in the market which is high yielding than lend to the Government of Sri Lanka (GoSL) where the returns fetched from such credit are low, he said.
According to the source, the spread between bank FDs and T Bills virtually for all tenures, ie three months, six months and one year was as high as 400 basis points (4%). But a year ago the story was different, with banks’ FD rates being in tandem with T Bill yields for almost all tenures, the source said.
Not only credit growth, but high import demand too drains out rupee liquidity from the system, particularly so in a scenario where foreign inflows are less than foreign outflows, thereby creating a deficit in Sri Lanka’s foreign exchange (forex) income.
One way of solving this problem is by depreciating the rupee, thereby making imports more expensive and, ipso facto acting as a deterrent again making foreign purchases. But a possible fallback in this type of operation is that it also makes essential commodity imports needed by the poor, or which indirectly has a bearing on the poor such as diesel needed for goods/public transport more expensive, thereby hitting the poor the hardest in such a scenario.
When an importer buys forex, usually US dollars ($s) to make an import, he drains out rupee liquidity from the system. The situation is compounded as there is a net foreign outflow of $s from the country rather than the opposite taking place. Part of the reason for this net outflow is because the rupee is being protected by GoSL/CBSL as a measure to control import prices. But if the $ is too expensive, that would deter the market from going after the greenback, however if the $ is “cheap,” as it appears to be so now, that creates demand for $s in the market to make imports. Currently GoSL/CBSL in interbank trading is defending the exchange rate ((ER) (rupee)) at Rs. 113.90 to the $. But as demand for $s outpaces supply, GoSL/CBSL, as it’s defending the rupee at an administered rate, is forced to draw down from its forex reserves to quench the market of its thirst for $s, thereby going against market fundamentals as the value of the ER is fixed or administered, as opposed to being guided or determined by market dynamics.
So the sole seller of the ER at a low, administered price is CBSL. As a result CBSL gets flushed with rupee liquidity (when they sell $s to the market), while at the same time becoming poorer of its holdings of forex reserves. It may release this excess rupee liquidity to the market through its reverse repo auction or reverse repo purchase rate at a maximum overnight price of 8.50%*, but the hitch is that such borrowings from CBSL have to be supported by the borrowers (banks) by providing it with low yielding T Bills as security (lower than what could be gained if the same was lent to the market).
Therein lies the crunch! (See also business page editorial found on page 42)
* CBSL’s reverse repo purchase rate that prevailed at least till Thursday.

No Liquidity Problem
Foreign capital infusion has stayed away the liquidity crisis from one of the island’s smaller banks.
A consultant to this bank who didn’t want to be named told this reporter with its branch expansion, that that has absolved it from any possible liquidity stress due to deposit mobilization.

Computer Bills Err

sanjeewa — Sat, 04 Feb 2012 19:16:22 +0000

Not all computer generated bills are allegedly correct, as one of our readers found out the other day.
Having entertained some guests at a Colombo pub last Friday , he had run up a computer generated bill amounting to Rs. 32,000 which he had paid. However, the following day when he totalled up the bill, he found the amount to be only Rs. 26,000; Rs. 6,000 less than what he had been asked to pay.
When he brought this to the notice of the pub authorities they agreed that there was an error, but pussyfooted in giving our reader his refund on the grounds that it had to be first sanctioned by the accounts department.
When this was brought to this reporter’s notice on Tuesday and when he phoned the pub in question, they agreed to pay the refund in a day or two. Subsequently they had told our reader that the refund would be settled the following day Wednesday, and the refund was got with a gift of a cake also to boot!
The lesson from this episode is never trust a computer generated bill?

CORE Burns Out

sanjeewa — Sat, 04 Feb 2012 19:15:54 +0000

USAID, in one of its last acts under its “Connecting Regional Economies (CORE) Programme, helped compile road signage manuals specially geared for tourism, coupled with start your tourism business (SYTB) manuals which were launched in Colombo on Monday.
The CORE project valued at US$ ($) 11.3 million and spread over three years concluded last week. It encompassed six sectors one of which was tourism, under which sector the SYTB and road signage programmes were initiated.
To a question by this reporter as to what would USAID’s next move be, now that the CORE project is over? Ms Tania Brunn, Chief of Party USAID/CORE in reply said that there are other ongoing USAID programmes that are on the ground.
To a question made to Economic Development Minister Basil Rajapaksa (who was also present at this function) that as the SYTB and the road signage manuals may have had been at a nominal cost and as such whether there was any necessity in getting USAID involved in such a project, where local resources per se would have had been sufficient to meet the cost of such projects? Rajapaksa, under whose domain tourism comes under said that international expertise was necessary to implement such programmes.
Gazetting of road signages comes under the purview of the Transport Ministry while its designs come under the aegis of the Highways Ministry. While Highway Ministry officials were present, there weren’t any Transport Ministry officials present at this function.
When this question was posed to Brunn (the function was organized by USAID), she in reply said that Ministry too was invited for the programme. Prior to the advent of Ms. Chandrika Bandaranaike Kumaratunga’s Government in 1994, both Transport and Highways functioned under one ministry. At present the Minister in charge of Transport is Kumar Welgama, and that of Highways, President Mahinda Rajapaksa.

Akbar’s Absence Felt

sanjeewa — Sat, 04 Feb 2012 19:14:48 +0000

Economic sanctions on Iran, Sri Lanka’s biggest tea importer, have virtually crippled the industry.
An industry source who didn’t want to be named told this reporter that as a result of these sanctions, leafy tippy teas, exclusively catering to the Iranian palate and which used to fetch premium prices of between Rs. 2-3,000 a kilo, fell to Rs. 600 a kg. at last week’s auction. The main reason for this steep drop in price was because Akbar Brothers, Sri Lanka’s biggest tea exporter, which also caters to the Iran market, abstaining from buying this category.
When the industry confronts the Government with this problem, it merely waives it off, he said.
Sri Lanka banks have stopped dealing with Iranian banks because of fear of US sanctions, he said. “A lot of money due, to our exporters to Iran is blocked because of these sanctions,” the source said. Payment success depends on the strength of the buyer, he further said. Previously, to avoid these sanctions, shipments to, and payments from Iran, were sourced through Dubai, but now that avenue too has been blocked, the source said. However nominal quantities still find their way to Northern Iran via Turkey, he added.

Hike Stalled

sanjeewa — Sat, 04 Feb 2012 19:13:46 +0000

Central Bank of Sri Lanka didn’t permit Wednesday’s primary Treasury (T) Bill auction to be fully subscribed, an indication that the market was asking for higher yields which CBSL/Treasury/Government of Sri Lanka was however not prepared to pay for,* a market source told this reporter.
Though the amount offered for reissue of maturing T Bills was a sum of Rs. 12,000 million; the market was allowed to subscribe to only Rs. 9,751 million despite receiving offers for 20,402 million, a sign that the majority of offers made were for higher yields at the T Bill primary market.
With demand controlled, the weighted average yield of the 91 day (three months) maturing T Bill went up by a mere one basis point week on week to 8.68%, while those of the 182 day (six months) and 364 day (one year) maturities stagnated at 8.71% and 9.30% respectively at that auction.
*Higher T Bill yields make GoSL’s borrowing costs to go up, similarly T Bill yields act as a benchmark to determine which path market interest rates should take. A high interest rate regime makes borrowings more expensive, therewith dampening investments, a knock on effect of which is job creation.

Ceylon Tea In India

sanjeewa — Sat, 04 Feb 2012 19:12:46 +0000

Mlesna and Dilmah premium teas are found in supermarket shelves in India.
This was told to this reporter by an Indian bulk tea exporter, who even exports black tea to Sri Lanka for the purpose of blending and reexport.
The exporter who didn’t want to be named said that though Darjeelings fetch a premium over that of Ceylon Teas, the quantities produced of the former was miniscule, a mere eight million kilos annually. In contrast the amount of Ceylon Teas harvested annually is some 300 million kg.
Assam teas which also do fetch a premium comprise a harvest of 500 million kg. or over annually. They are manufactured in both orthodox and CTC form, this exporter who also caters to the Pakistani market said.
The source said that there are no problems in exporting to Pakistan from India, but the US sanctions on Iran has hit Indian tea exports to that country, its fourth largest market, badly.
Indian rice exports to Iran have received an even bigger blow, the source said.
On the question of Delhi circumventing US sanctions? The source in reply said that that aspect covered only the importation of Iranian oil.

Expenditure Management

sanjeewa — Sat, 04 Feb 2012 19:10:06 +0000

Government’s expenditure management simplistically put is similar to budgeting one’s household expenditure, that’s also where donor agencies such as the IMF are there for, to help governments running budgetary deficits by providing them with soft loans to fill in those gaps, whilst at the same time trying to instil fiscal and financial discipline in the management of public money.
When trying to equate balancing one’s household expenditure to that of government budgets, the subtle difference here is household budgeting deals with one’s own money, whereas budgeting Government expenditure deals with the stewardship of public monies.
Handling and spending public money require far greater accountability than expending one’s own money as the former deals with in spending someone else’s money, ie that of the public’s, rather than one’s own money.
In countries where there is far greater accountability in regard to such matters, such as countries in the West, Japan and Australasia, and even among Sri Lanka’s closest neighbour India, presidents, prime ministers, ministers MPs and public officials have had been sent home or have voluntarily resigned, if they have had been caught fiddling with the public purse, despite sometimes such expenditures bordering on abuse are seemingly innocuous in monetary terms and add up to mere nominal amounts.
Such are the systems in place in those countries where they treat the handling and spending of such monies as being something which is sacred and sacrosanct and not to be taken lightly, with one whiff of suspicion being enough to launch an investigation, where sometimes the cost of the investigation process alone may be more expensive than the sum total of the money that had allegedly been misused and/or abused!
However that may be, that is the extent of the ethos of accountability practiced by those nations and that may also be the reason for the prosperity of such countries, the exception being India in this instance.
Deterrence is the best form of avoiding a repeat of such acts or actions of misuse, abuse, wastage and corruption.
Does Sri Lanka also have such accountability laws to ensure the judicious spending of public money? But when one looks at the wastage taking place, when standard, tried, tested and proven procurement laws are flagrantly cast aside and contracts are given and expenditure on public works enhanced over and above that which was originally agreed upon seemingly upon the whim and fancy of a single individual, those are clear violations of accepted procurement practices.
And the irony is no one is taken to task, no one is held accountable and no one is sent home for such gross violations, such waste of public money! Is it allegedly because a powerful VVIP himself is behind this waste, he alone is responsible for such waste and alleged corruption and that it’s he who is answerable and no one else for such malfeasance, that thereby being the reason that no action is taken?
That may probably be the cause for this state of affairs. But that sets a dangerous trend, where some are answerable and a few are not. The few who are not answerable are those who are the biggest culprits of waste and alleged corruption and the others who are caught and made accountable being but mere sprats. Such distortion of laws, such asymmetry in deciding that which is right and that which is wrong and who is right and who is wrong do not augur well for a country in its several theatres of operation, not least in the act of trying to attract much wanted investments into the island.
Institutions and laws have to be in place and not only be in in place, but also practiced as well to ensure that everyone is held accountable for his or her’s acts of omission or commission, high or low, VVIP or not, then only will Sri Lanka drive on the road that will lead it to its prosperity and that of its peoples.
However that may be, on the subject of the public purse, Government’s current expenditure in the first 10 months of last year increased by Rs. 78.9 billion or by 10.02% year on year to Rs. 866.3 billion according to available statistics.
During the same period Government revenue and grants increased by Rs, 73.2 billion or by 10.9% to Rs. 745.1 billion.
This shows that there is a gap between Government’s current expenditure and “revenue and grants income” to the tune of Rs. 121.2 billion. This gap will have to be met by borrowings. According to Central Bank of Sri Lanka (CBSL) Governor Ajith Nivard Cabraal, Sri Lanka’s GDP grew to US$ ($) 59 billion last year. Taking into account that the $ value in inter-bank trading is Rs. 113.90 to the $, a GDP figure of $ 59 billion is equivalent to Rs. 6,720.1 billion.
So in GDP terms, the recurrent expenditure to “revenue and grants income” gap is equivalent to 1.8% of GDP in that review period. Meanwhile Government’s “capital & lending minus repayments” in the review period increased by Rs. 41.3 billion to Rs. 302.6 billion, widening the overall budgetary deficit in the first 10 months of last year to Rs. 423.8 billion or 6.3% of GDP. If one prorates those 10 months’ deficit percentage figure to 12 months or a year, one arrives at a figure of 7.56% of GDP as being the possible overall deficit figure in GDP terms of the Government’s budget, last year.
Government of Sri Lanka (GoSL) promised the IMF that the budgetary deficit last year would be contained at 6¾% or 6.75% of GDP. But given the current trend, it may be overshot by 0.81% of GDP or by Rs. 54.4 billion, no small figure by any long chalk and probably that may be one of the reasons why the last two tranches of the IMF, of its original $ 2.5 billion standby arrangement (SBA) with GoSL, which was entered into 2½ years ago, comprising a balance of some $ 900 million, to be equally disbursed in two packages comprising $ 450 million each, being available after disbursing a sum totalling $ 1.6 billion thus far, has however long been delayed, in being given.
GoSL/CBSL has said that that they want to renegotiate the balance amount due, with the Fund, but, up to date, no further news has percolated down on that score.
Talking of the IMF, an IMF mission which was in the island recently, for a longer than usual tenure, met the press on Friday.
Visiting IMF missions have been regularly meeting the press, especially after it approved the aforesaid$ 2.6 billion SBA with the island 2½ years ago in order to sort out a balance of payments crisis the latter was facing then, and when such missions made their regular visits to discuss and examine progress thereafter, they also made it a point to periodically meet the press during such visits, to inform them of progress.
IMF and GoSL, or at least some of the key agents of the Government don’t see eye to eye in regard to the state’s current exchange rate (ER) policy as well.
Another of IMF’s conditionalities in its SBA with GoSL is that the country’s foreign exchange reserves should contain a minimum amount that is “free” as opposed to reserves accumulated in the form of loans or foreign investments in government debt that will have to be repaid sooner or later, thereby diminishing the actual reserves position. This free or net international reserves (NIR) need to be in the form of tourism and export receipts, remittances and such like, which need not be repaid on demand as is the case in regard to loans and similar such arrangements.
There is a question mark as to whether GoSL has met that target also, and that may well be the reason for the IMF to have had held back disbursing the balance tranche/s due to GoSL in the aforesaid SBA, because it has not met IMF’s NIR target. Of late GoSL has been squandering its reserves in trying to protect the rupee from further depreciating from the current Rs. 113/90 level due to demand for the greenback from the market for various reasons as enunciated in the past on these pages.
But as a banker told this newspaper last week (see last week’s business page lead), a weak rupee will hit the country’s development works. He also said that international rating agencies have not placed the island on a “ratings watch” just because it’s seemingly dissipating its foreign exchange reserves by defending the rupee.
So there may be pros and cons in relation to GoSL’s/CBSL’s present stance of defending the rupee, after devaluing the same by 3% last year when President Mahinda Rajapaksa virtually took the market by surprise by announcing that 3% rupee devaluation when presenting Budget 2012 in Parliament last November. As if in retaliation to Rajapaksa’s directive, CBSL, which upto that point had not only been protecting the rupee, but interest rates as well, let go in protecting the latter, which led to Treasury (T) Bill yields in the weekly primary auctions going sky high.
It’s reported and actions have also shown that the Treasury and the CBSL don’t see “eye to eye” in regard to the island’s ER policy.
The very threat of another “tit for tat” by CBSL in the event the Treasury goes for another ER devaluation, in the form of allowing yields at the T Bill auction to further deepen and its cascading effects on market interest rates may be acting as a dampener for the Finance Ministry to take that route again.
But this ostensible tug-o’-war between the Treasury and GoSL is also not good for the market either, as inferred to by that banker in that previous week’s interview. However that may be, the CBSL Governor can only be removed by Parliament? That, for better or for worse, is but a rare example of the separation of powers in the present constitution as opposed to the consolidation of powers, whereas in the case of the latter, which among other things leads to unaccountability in the management of the public purse, as the aforesaid events have had shown.

Paperless Communication

sanjeewa — Sat, 04 Feb 2012 19:09:27 +0000

Left to right: Software Development Head Chandimal Wickramaratne, Asiapac Business Development Director Uminda Jayaweera, Chief Executive Officer (CEO) Ms. Lakmini Wijesundera, Nations Trust Bank CEO Saliya Rajakaruna, Chief Operating Officer Rohitha Ganegoda, Company Secretary and DGM Legal and Compliance Theja Silva and Technology and Infrastructure Chief Manager Nisala Kodippili.

Corporate activity is no longer only about engaging in business, there are various additional components that have a strong impact on corporate entities’ profit maximization ethos. Green activity, environment consciousness, natural resource consumption and productivity enhancement feature high amongst these other vital components. In an increasingly green and carbon friendly global environment, Nations Trust Bank plc (NTB) has taken the first step by initiating the move into a paperless boardroom.

Being a group of active professionals across a variety of disciplines, NTB’s Director Board are for the most part on the move and require a large information volume to be at hand at all times. With the Apple iPad Board Application, Board members will be able to access not only the current board papers but also recall past board papers at the click of a button, enabling decision making both simpler and faster.
The Apple iPad Board Application will also cut costs in terms of paper wastage, printing, couriering, etc. Now all board papers and related information will be available real time. Apart from cutting costs and ready data availability, the effect on the environment i.e. going paperless is a tangible benefit due to the conservation of trees. Endless copying of board papers is now a thing of the past.
The example set by NTB’s top echelons will no doubt be a standard to aspire among the industry. Indeed there are signs that the technology will be adopted by other bank boards.
This initiative is made possible by leading International mobile solutions partner Iron One Technologies which provide mobile solutions to several international companies including some Fortune 100 Companies. Iron One Technologies’ global status as enterprise solution provider in the USA with branches in the Asia Pacific Region lead to the firm establishment and success of NTB’s paperless boardroom initiative.
Speaking on the momentous move, NTB Chief Executive Officer/director Saliya Rajakaruna said, “This was well received and supported by our former Chairman Ajit Gunewardene and we as Board members are proud to be setting an example in this much needed green initiative. Our vision is to use other suitable technologies such as iPad and tablet based mobile solutions to enable correct and timely decision making across our entire banking and financial service sector. The Board Application is an innovative and useful application that helps the board member to receive, review and collaborate with ease even whilst flying.”
NTB is renowned for its innovative capabilities and the adoption of high end technologies in order to make banking more efficient and effective.
“We are proud to be part of this initiative and to be the first in the industry to launch this solution. The iPad solution has contributed immensely to streamlining the processes within the organization and has led NTB to move into a paperless boardroom.” said Company Secretary and Deputy General Manager Legal & Compliance Theja Silva.
“Mobile solutions’ success in banks may very clearly be seen in foreign countries. NTB is proud to be Sri Lanka’s first bank to incorporate these measures and we will most certainly be moving onto other similar ventures that will afford the best quality service to our customers,” said NTB Chief Operating Officer Rohitha Ganegoda.
NTB is one of Sri Lanka’s fastest growing banks. The Bank now has 48 branches, seven personal banking centres and is the sole issuer and acquirer for American Express cards in Sri Lanka, with a global reach of banking activities and close partnerships with leading international financial services providers.

We Overcome Challenges – President

sanjeewa — Sat, 04 Feb 2012 19:04:52 +0000

Our nation is fortunate to celebrate the 64th Independence Day with a genuine sense of dignity about freedom.

Today the national flag flutters pointing to a new country in the making. The way is open for an independent economy. It daily reinforces the nation’s aspiration for a prosperous future. It has given us freedom to decide upon issues concerning. the country and the nation without bowing down before external powers. I strongly believe that is the immense responsibility the nation entrusted to us. It is a great pleasure to see the steady consolidation of supreme independence.

The country’s achievements would be secured when opportunities for peace, co-existence as well as harmonious living are widened. Sacrifices made so far to reach that objective have to be secured in future too. We would no longer hesitate to take decisions towards fostering national unity through an indigenous programme of action. We overcame diverse challenges the country faced with extreme patience. We have built productive economic, political, defence, trade and cultural links with the international community through friendly contacts. We must preserve all this by working more rationally, intelligently and patriotically than even before.

Similarly the country should be brought forward developing its value systems. It is only then that a prosperous life would emerge in a peaceful environment.

The nation’s- respect and felicitations should go to all patriots who paid the supreme sacrifice, laying down their lives to overcome the nations challenges for the sake of supreme independence.

I wish to a bright future!
Mahinda Rajapaksa

Frt. Takes Hit

sanjeewa — Sat, 04 Feb 2012 19:03:48 +0000

Hanif Yusoof

Expolanka Holdings PLC sustained its consolidated NPAT for the nine months ended December 31, 2011 at Rs. 903 mn, with a consolidated NPBT at Rs. 1,186 mn.
Net profit attributable to equity holders reached 768 mn. during the review period.
Group’s Transportation Sector managed to sustain its year-to-date bottom-line which contributed a Rs. 1,150 mn. PBT and Rs. 932 mn. PAT. The other three key sectors-International Trading, Manufacturing and Strategic Investments contributed a Rs. 193 mn. PBT and Rs. 159 mn. PAT to the Group.
Expolanka Group CEO Hanif Yusoof said, “We believe that the company needs to provide total logistics solution to our customers. Despite the dip in the freight industry as a whole due to an overall volume reduction, the core freight sector relatively sustained its position where NPAT dropped by 6 %. This was achieved due to an enriched brand value and our focus on margin management”.
The significant negativities faced by the GSA sector in relation to global economic issues during the last quarter continued to increase.
Declining rates along with less cargo movements impacted the sector to a great extent.
With the country’s tourist arrivals reaching new heights during the calendar year 2011, Expolanka re-positioned its travel and leisure arm to cater to the evolving needs of the tourist industry, resulting in a rapid growth in the customer base.
The set-back encountered in the Tea Sector during last quarter due to global market conditions is now improving. This sector is now getting back on track. The penetration made in value-added products during the last two quarters proved to be a sensible move. The company created a strong brand name with “t-sips” brand securing SLS certification.
In the Manufacturing Sector, the quarter continued to remain stable with both revenue levels and NPAT increasing over previous year.
The Company is encouraged by the continued growth in Neptune Recyclers which has turned around its operations. It has also developed the right
infrastructure for this operation to expand and strengthen the manufacturing sector.
“The Strategic Investment Sector grew by 125% in terms of NPAT growth during the quarter primarily fuelled by the performances of APIIT, our tertiary education institute which has been able to consolidate its operations by offering a wider programme range. There is a great response from the market for the increased degree programmes which we introduced in the recent times.
Expansion is also focused in the diversity of degree programmes to cater to the different student community segments who intend to specialize in different education fields. The management is confident that we can sustain these growth levels where this sector is expected to provide sustainable contribution to the group’s bottomline”, Yusoof added.
The review period was highlighted by key events both at group and individual company level. “We made additional investments and have increased our stake to 51 % in both Expo Freight Pakistan and also in Expo Freight Vietnam. During the quarter we acquired a controlling stake in Norfolk Foods, a strategic move to penetrate into the food industry. This industry is rapidly growing and we are confident that this acquisition would add advantage to our product portfolio mix. This quarter we received international recognition for Expolanka’s ongoing efforts in CSR and social marketing at the World Brand Congress,” Yusoof said.