Finance Sector overrated?

I am not too optimistic about the banking sector except few opportunities I foresee as given below;

NDB DFCC Merger
NDB and DFCC share prices would be critical for any proposed share swap in the event of a merger. So I keep watching these two shares and believe NDB is sitting on a pile of money and not earning adequate returns to the shareholders.

Finance Company Mergers.
My belief is all shareholders are eventually going to loose money and value cause there would certainly be dilution of existing shareholdings due to the new infusion of equity either by new investors through conversion of deposit to equity. So don't be too optimistic about finance company share except that you would get an opportunity to trade and make profits, but not to invest in long term.

Segregation of Insurance Companies
This present a great opportunity to medium to longterm investors. I believe even short term investors stand a chance to gain from the proposed compulsory restructuring of Life and General businesses of Insurance companies into two separate entities. This would pave way for some Insurance Companies to make huge capital gains whilst other would increase their market share and future earnings

Commercial Banks will have to work hard
Commercial Banks will have to work harder in a low interest rate environment to ensure that they sustain the same profits. They will have to improve their credit growth significantly whilst maintaining NPL level around the same level. Banks which have access to grass root level lending are likely to benefit.

Do agree with you Quibit! 

Subdued credit growth seen improving in second half 2014, CB says

Credit growth which has been subdued in the past few months despite lowering interest rates is seen picking in the second half of the year, the Central Bank (CB) said on Wednesday.

” . with the realisation of the effects of the eased monetary policy stance, a turnaround in credit growth could be expected in the second half of the year. The implementation of the credit guarantee scheme in relation to pawning advances is also expected to further stimulate private sector credit growth,” the regulator said in the latest review of the economy. Credit to the private sector and even Government agencies have shown marginal growth, contrary to CB expectations, even though interest rates are down to virtually single digit levels. Banking analysts believe corporates are not borrowing too much due to a drop in consumption and also lack of business confidence.

The CB statement said that net credit to the Government contracted by around Rs. 6.8 billion in April while credit to public corporations recorded only a marginal increase. Subdued credit demand from the public sector along with the deceleration of private sector credit by the banking sector to 3.3 per cent (y-o-y) in April dampened the expansion of broad money during the month. “In spite of the relaxed monetary policy environment since December 2012, the continued moderation of growth of credit to the private sector seems to reflect the customary transmission lag of around 18 months and the contraction in gold backed loans since April 2013,” the Bank said.

On other areas of the economy, the CB said Sri Lanka’s economy recorded a growth of 7.6 per cent in the first quarter of 2014, up from 6.1 per cent in the corresponding 2013 quarter. The growth in the economy was led by contributions from the industry and services sectors although a slowdown was observed in the agriculture sector owing to adverse weather conditions.

The CB said the growth momentum is likely to continue during the remainder of the year with improved global economic conditions and expected improvements in domestic credit conditions enabling the economy to achieve the envisaged growth of 7.8 per cent for 2014.

Reaching its lowest level since February 2012, headline inflation (y-o-y) decelerated significantly to 3.2 per cent, while core inflation (y-o-y) decelerated to 3.3 per cent in May 2014, underpinned by well managed inflation expectations and subdued demand conditions. Inflation is expected to remain in mid-single digits during the year.

The CB said that in the external sector, data for April 2014 indicates that external trade continued to remain buoyant during the month despite a modest decline in expenditure on imports, which resulted in a further contraction in the trade deficit. Inflows from workers’ remittances remained robust alongside a significant increase in earnings from tourism reflecting the continued influx of tourists. On account of these developments, together with the inflows from the proceeds of the seventh international sovereign bond in mid-April, gross official reserves as at end April strengthened further to its highest level of US$8.9 billion, equivalent to 5.9 months of imports. In view of the increased foreign currency inflows, the Central Bank has also absorbed around $550 million from the domestic foreign exchange market.

The statement said that the Monetary Board, at the meeting held on June 17th, also noted that interest rates on bank deposits have reduced to expected levels, although the lending rates in the market have still not adjusted in line with the decline in the deposit rates. As a result of such slower-than-expected adjustment in market lending rates, corporates have increasingly resorted to alternative sources of financing, such as corporate debt and equity issuances, suppliers’ credit, and funds raised from abroad under relaxed exchange control regulations to meet their needs.

“Nevertheless, a reasonable level of expansion in bank credit disbursed to productive sectors of the economy is considered beneficial for the continued growth in economic activity. In this regard, the Central Bank is of the firm view that the banks now have adequate space to reduce market lending rates further to encourage the private sector to demand credit from the banking sector, while also tightening the spread between lending and deposit rates of banks to a more reasonable level. Accordingly, the Monetary Board also decided to urge banks to lower their market lending rates in order to reflect these changing circumstances,” the statement said.

In this background, the Monetary Board decided that the current level of policy interest rates is appropriate and therefore decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank unchanged at their current levels of 6.50 per cent and 8.00 per cent, respectively.

Sunday Times

I'm bullish in finance sector and if the mergers going well we will see very strong few Banks and finance companies end of this year. Which might able to attract even low cost forriegn funds.

I would go against the finance company matter. I can see a better return to the share holders in the case of some finance companies not all of them.

Now if you take SCAP you will still have a very good chance to grab it under Rs5.0. This will give investors a very good return in near term. Just see the things are happening at SHL. The same scenario will apply for SCAP too. So be ready......

In the case of DFCC/NDB merger, will finalise before end of July 31st 2014. wonder which company share holders benefit the most.

My gut feeling is its DFCC share holders.

NDB will have to spend some money to buy the balance shareholdings of NDB Capital (CDIC). Will it impact NDB Share Price?

Hey How about ATL & ABL

I see better prospect for Amana Bank

Collecting below Rs 5-5.50 would a good entry point.

SHARK wrote:Hey How about ATL & ABL

I see better prospect for Amana Bank

Collecting below Rs 5-5.50 would a good entry point.

yes indeed, Amana bank would be a potential player.
because it wont be subjected to mergers since its coming under sharia category.
secondly it is becoming a one of the trusted brands of the Muslim community with current racial issues.
most of all, the investors who are entering at this point will be counting on the time and not the timing.  

I can see few people are now realisng the truth about the Financial Sector. It cannot go up forever,

Quibit wrote:I am not too optimistic about the banking sector except few opportunities I foresee as given below;

NDB DFCC Merger
NDB and DFCC share prices would be critical for any proposed share swap in the event of a merger. So I keep watching these two shares and believe NDB is sitting on a pile of money and not earning adequate returns to the shareholders.

Finance Company Mergers.
My belief is all shareholders are eventually going to loose money and value cause there would certainly be dilution of existing shareholdings due to the new infusion of equity either by new investors through conversion of deposit to equity. So don't be too optimistic about finance company share except that you would get an opportunity to trade and make profits, but not to invest in long term.

Segregation of Insurance Companies
This present a great opportunity to medium to longterm investors. I believe even short term investors stand a chance to gain from the proposed compulsory restructuring of Life and General businesses of Insurance companies into two separate entities. This would pave way for some Insurance Companies to make huge capital gains whilst other would increase their market share and future earnings

Commercial Banks will have to work hard
Commercial Banks will have to work harder in a low interest rate environment to ensure that they sustain the same profits. They will have to improve their credit growth significantly whilst maintaining NPL level around the same level. Banks which have access to grass root level lending are likely to benefit.

After seen the GSF agreement with Deshodya Finance I believe the consolidation will bring mixed results. Quibit may be correct to say that Finance sector is overrated.