Sri Lanka Newspapers Monday 27/02/2012

Analyst: ‘Take bold steps to provide accurate forecasts rather than trying to hide the obvious’
*Rs. 1bn net foreign inflows stimulates positive moods in desperate CSE
*Market digests ‘new’ economic climate

An equities market analyst says the Rs. 1 billion net inflow of foreign investment into the Colombo Stock Exchange (CSE) has lifted moods in a market desperate for change.

The All Share Price Index closed 1.07 percent higher on Friday to 5,566.30 points, continuing on a positive run after weeks of sharp declines.

"The market has moved from being extremely pessimistic to moderately bullish towards the end of the week. We have seen close to Rs. 1 billion in foreign purchases for the year and the main beneficiaries were JKH and COMB. This positive influx of funds has helped stimulate a positive mood in the market that was desperate for change," said Stefan Juriansz, Technical Analyst, Bartleet Religare Securities.

"However one concerning factor was that COMB has hardly moved from Rs. 100 while shares swapped hands. Once the selling stops we hope that the stock would resume its uptrend and keep Rs. 100 as support rather than becoming resistance for the stock. JKH on the other hand seems to have now found solid support at Rs. 160 and the stock now has the potential to move towards Rs. 210. If JKH were to head towards the technical target, the index which follows has the potential to move towards 6,100. This move up for the index would be a short term bullish correction in a bear market.

"Technically the ASPI is stuck in a downward trading channel with a channel resistance of about 5,650, while the MPI will face heavy resistance at 5,000. The market would be looking to break above these levels next week and head higher, however such a move without some consolidation will be difficult and ideally we would look for the market to drift towards 5,350," Juriansz said.

The Economy

Even though the index seems to have found temporary support, we believe that the economy may see signs of hitting a plateau, he said. "The Central Bank will have a difficult job striking a balance between inflation and growth and will try not to raise rates in the face of steep inflation which is supposed to be ‘6 percent’."

As reported in The Island Financial Review last week, Standard Chartered Bank in its latest country report suggests that the Central Bank would have to raise rates by 0.75 basis points and the rupee to devalue further this year as market forces cannot be stopped.

"We feel more rate hikes may be in the cards as we feel that the hefty loan growth may not be sustainable over the long run. Bank sector asset quality has hugely improved from the lows of December 2009 where NPLs peaked at 8.5 percent to 3.8 percent in December 2011," Juriansz said.

"If the loan growth continues at these high levels, we may see asset quality being compromised in the longer run coupled with the higher forecast interest rates. We however find the current quality of banking assets satisfactory with the more stringent CBSL reporting regulations. At present the market has digested the new economic climate that revealed itself last week. It is now imperative that the key stakeholders take bold steps to provide the market and the economy with accurate forecast rather than trying to hide the obvious. The market is fragile and unexpected announcements or unstoppable market moves can kill the momentum and will bring about the next leg of the bear market."
http://island.lk/index.php?page_cat=article-details&page=article-details&code_title=46160

Low interest rate regime and improved business sentiment swell commercial bank credit to private sector by 34%; cumulative amount tops Rs. 2 trillion mark

Two full years since end of war has seen lending to private sector balloon by over Rs. 800 b

Private sector borrowing last year had swelled by an unprecedented Rs. 511 billion or 34%, thereby seeing the cumulative amount top the Rs. 2 trillion mark, as per latest Central Bank data.

The half a trillion in borrowing last year was a record high and the 34.5% growth was on top of the 25% increase seen in 2010 over 2009. The combined value of credit of the private sector in the full two years since the end of the war amounts to a staggering Rs. 811 billion.

Credit to private sector via commercial banks’ Domestic Banking Units had grown by 36.6% to Rs. 1.82 trillion in 2011, and from Foreign Currency Banking Units (FCBUs) grew by 17% to Rs. 184 billion. In 2010 the respective growths were 28% to Rs. 1.33 trillion and 4.6% to Rs. 157 billion.

Analysts said credit growth was due to the post-war rebound in the economy and business sentiments fuelled by the low interest rate regime.

Whilst full year data is not available, in the first nine months of 2011, commercial bank loans to the construction sector accounted for 15% of the total, followed by agriculture and fishing (14%).

Credit via pawning had a share of about 13% and reflected the biggest increase as in the case of 2010. Credit to wholesale and retail trade emerged as the fourth largest with a share of about 8%, followed by financial and business, textiles and apparel and consumer durables.

Following its last monetary policy review, the Central Bank early this month admitted that 34.5% growth was “substantially exceeding projections”.

It said provisional estimates indicated that within the credit extended to the private sector by commercial banks, trade-related credit and credit driven by import-related items such as motor vehicles and consumer durables increased significantly.

Import-related credit increased by over 34 per cent during 2011, while the increase in credit for export activity was only around eight per cent during the year. Pawning also displayed a significant increase in 2011.

To check explosive credit growth and to achieve other macroeconomic goals, the Monetary Board decided to increase policy rates in February (first time since 2007) as well as request banks to cut down lending.

The repurchase rate and the reverse repurchase rate were increased by 50 basis points to 7.50% and 9% respectively. Furthermore, commercial banks were directed to moderate their credit disbursements so that overall credit growth in 2012 would not exceed 18% of their respective loan book outstanding at the end of 2011, while credit growth of up to 23% would be allowed for those banks which finance the excess up to 5% of the credit growth from funds mobilised from overseas.

Analysts said that 18% growth would still be high since it would be on a higher base. Based on provisional end 2011 credit to the private sector, the envisaged 18% amounts to Rs. 360 billion, which will be higher in comparison to what the private sector borrowed in 2010.

After dipping by near 6% in 2009, private sector credit in 2010 regained momentum growing by 25%. This too was on account of improved outlook for economic activity and the continued accommodative monetary policy stance of the Central Bank.

The expansion in credit flows was reflected in all sectors of the economy. In 2010, the Central Bank revised policy rates downwards twice, whilst it listed factors such as improved post-conflict economic conditions in the country, enhanced business confidence among entrepreneurs and the recovery in the global economy that helped spur credit flows to the private sector.

The 2010 performance also prompted the Central Bank to stress that these factors had helped ease the heightened risk averseness observed among commercial banks during the previous year, thus encouraging lending activities.
http://www.ft.lk/2012/02/27/private-sector-borrowings-top-rs-500-b-in-2011/

Lanka ORIX Finance (LOFC) has one of the largest deposit bases in the Registered Finance Company sector. A member company of the LOLC Group, LOFC commenced commercial operations in June 2003 and was listed in the Colombo Stock Exchange last July.

As a Registered Finance Company (RFC) engaged in Finance Business its product range includes mobilizing savings and fixed deposits in both local and foreign currency by way of NRFC, RFC and SFIDA accounts, offering credit facilities such as loans, hire purchase and finance leases. In addition, LOFC operates as a trustworthy channel for worker remittance – one of the fastest developing businesses of the company today.

Recently, the Company entered into a landmark partnership with the International Fund for Agricultural Development (IFAD) headquartered in Rome, Italy to implement a special program to uplift the living standards of rural poor in Sri Lanka by conducting a series of educational programs aimed at raising awareness among migrant worker families on meaningful financial management and investment, they hope to economically empower rural Sri Lankans who seek foreign employment through financial inclusion. Migrant workers are given assistance in setting financial goals through special training programs and thereafter guidance and support to achieve same.

“The aim of doing this project is Economic Prosperity for Rural Poor through Remittances Disbursed via Lanka ORIX Finance” says, Brindley de Zylva, Managing Director/CEO. Explaining the benefits behind this program de Zylva added, “This program will offer them a free life insurance cover though the Insurance arm of the Group, LOLC Insurance Company Ltd which will cover any unexpected visits back home in case of a bereavement of an immediate family member or on loss of employment of the Migrant Worker. “

Similarly, the company has linked with LOLC Micro Credit Company Ltd to offer micro loans for income generating activities to reduce the dependence on remittances and ensure a source of sustainable income hastening the return journey of the migrant worker.

In order to ensure that their remittances reach their loved ones safely back home, LOFC has partnered exchange houses such as Xpress Money, Valutrans and Money Exchange Spain. Lanka ORIX Finance is the only non-banking institution in Sri Lanka to have joined the SWIFT network and be listed in the Bankers Almanac.

De Zylva said, “Since launching our Fixed Deposit schemes and our new value additions for Foreign Currency Business, we have attracted many Sri Lankans with investments in Foreign Banks to place these deposits with us. This is a testimony to the strength and stability of LOFC. We also offer better returns for their investments and value added benefits in Sri Lanka.”

Senior Citizens are given special treatment with higher interest rates and an emergency medical scheme covered by a strategic alliance with Medicalls.

Nearing a decade of experience as a RFC, Lanka ORIX Finance is the only Finance Company backed by a global financial giant, the ORIX Corporation of Japan and the first/only RFC authorized by the Central Bank of Sri Lanka to engage in foreign currency business. At present, the company has an island wide presence through its footprint of over 50 branches strategically located at various parts of the island.
http://www.dailynews.lk/2012/02/27/bus16.asp