Sri Lanka Newspapers Thursday 22/03/2012

Rupee barely holds its ground
* T-bill rates surge, CB seen absorbing rupee liquidity
* CB says credit growth, import demand decelerating; better results after New Year

The rupee weakened marginally against the dollar yesterday on thin volumes while state banks were seen selling dollars, currency dealers said. The Central Bank issuing a statement yesterday said foreign inflows amounting to around US$ 763 million had come in so far this year, but with a significant portion being absorbed into reserves, the rupee did not benefit at all.

The rupee closed at Rs. 129.90/130.10 against the dollar yesterday after opening the day at Rs. 129.80/130 with trades being quoted as high as Rs. 131.

"Importer demand is still apparent with the festive season around the corner, but volumes were rather low.

A state bank was seen selling dollars which helped stabilise the exchange rate but the quantum of dollars sold was not very significant," a currency dealer said.

Earlier this year Central Bank Governor Ajith Nivard Cabraal said nearly US$ 27 billion in foreign inflows was expected materialise this year. He told The Island Financial Review that a quantum of that inflow would come in during the first quarter of this year and significantly ease the pressure on the rupee.

"Since the dollar inflows had been absorbed by the Central Bank the exchange rate was not benefited by them, instead the import demand, fuelled by credit growth, continued to influence the exchange rate," a currency dealer said.

The Central Bank yesterday said recent policy measures were already beginning to have the desired effects on credit growth and import demand, with both expected to significantly ease further after the Sinhala and Tamil New Year next month.

"The Central Bank is probably right because they see the numbers much sooner than we do. There is some import demand and credit growth, but volumes are thin. After the festive season, we could see things easing up a little in the financial markets," another currency dealer said.

Meanwhile, benchmark Treasury bill rates increased yesterday with all bids for the six-month tenure being rejected in a move currency dealers said was aimed at keeping rates from increasing too much.

The three months Treasury bill yield increased to 10.75 percent from 10.42 percent a week earlier while the 12 months bill saw its yield move up to 11.11 percent from 10.76 percent.

The six months bill received bids amounting to Rs. 3.64 billion all of which were rejected by the Central Bank at yesterday’s primary market auction of maturing bills amounting to Rs. 10 billion. Total bids amounted to Rs. 18.66 billion (including bids for the six months bill) and only Rs. 8.1 billion was accepted.

Overnight interbank borrowing rates eased yesterday from what they were the previous day. The Sri Lanka Inter Bank Offered Rate was down to 9.47 percent from 9.58 percent the previous day.

The Central Bank had absorbed Rs. 19.3 billion from the banking system yesterday with Rs. 14.2 billion absorbed the previous day, in complete reversal from what had happened in recent months where the Central Bank has been printing money to keep interest rates low and help banks cover their overnight rupee positions.

The Central Bank last absorbed rupee liquidity when it bought dollars from the foreign exchange market to build up the reserves prior to the current balance of payments crisis.

The Central Bank statement regarding foreign currency inflows in full:

"As projected in the Central Bank of Sri Lanka Road Map, foreign currency inflows to the country increased substantially in recent weeks. These were from several sources. First, there were significant inflows to the Colombo Stock Exchange (CSE), with the net inflows to the CSE so far in 2012 amounting to USD 164 mn. Second, there were inflows in respect of investments in several commercial banks, amounting to about USD 127 mn during this week. Third, investments in Sri Lanka Development Bonds (SLDBs) were made to the value of USD 87 mn, comfortably exceeding the USD 45 mn, that was maturing and was on offer for re-investment. Fourth, net investments of USD 385 mn in Treasury Bills and Bonds were made by foreign investors so far in 2012.

"A significant part of above inflows was absorbed by the Central Bank, thereby adding to the gross official reserves of the country.

"Further foreign currency inflows are expected in the next few weeks, which would include inflows as a result of several commercial banks raising funds abroad for their Tier 2 capital, and an initial investment of approximately USD 73 mn in a mega hotel project.

"The Central Bank also wishes to indicate that in response to the recent policy measures implemented by the Central Bank and the government, there are clear signs of deceleration in private sector credit growth and import demand. A further moderation is expected once the New Year seasonal demand for imports is over, thereby substantially easing the deficit in the trade account.

"The increasing foreign currency inflows, and the easing of the import demand as stated above, are expected to stabilize the foreign exchange markets in the coming weeks," the Central Bank said.
http://www.island.lk/index.php?page_cat=article-details&page=article-details&code_title=48009

* Informs CB of shift in gears
By Ravi Ladduwahetty

Merchant Bank of Sri Lanka which originally had plans of going in for the status of a Licensed Specialised Bank has now decided to abandon the idea and concentrate on merchant banking activities.

It has also decided to shelve the plan to merge the three subsidiaries- Merchant Credit Ltd, Ceylease Ltd and MBSL Savings Bank with the aim of operating as a licensed specialized bank, which would not enable the bank to proceed with the merchant banking activities, for which MBSL was originally meant for.

The Central Bank has provided provisional approval for MBSL to operate as a licensed specialized bank eleven months ago, but MBSL has told the Central Bank that it was not proceeding with the plans due to the Banking Act standing in the way of MBSL’s continuity as a merchant and investment bank.

"It was MBSL which pioneered merchant banking in Sri Lanka which was set up purely for that purpose as a Bank of Ceylon subsidiary and we thought that it was most appropriate that MBSL carries on with the core business that it was meant for and commenced with," MBSL Chairman MR Shah told The Island Financial Review yesterday.

"We really had plans of merging these three companies with the intention of making use of the potential of being a licensed specialized bank. For which we were given provisional approval around 11 months ago. On the contrary, the Banking Act does not allow Merchant Banking activity to take place in licensed specialized bank and if we were to get that LSB status, we would have to drop some of the core businesses that we have such as investment banking, Trade Finance and Corporate Advisory Services."

He also said that the Bank will continue to have an aggressive approach in the merchant banking arena for which the Bank of Ceylon is prepared to provide the funding arrangements. "We would much rather engage in that business which would generate much more income to the bank and that was the reason for the bank to go into aggressive investment banking," he said.

Former MBSL CEO Gamini Karunatilleke told the Island Financial Review last October that the prospect of a LSB would enhance the growth prospects of the bank tremendously and that the CBSL provided approval for the venture.

He also said then that there would be the merger of the three subsidiaries Merchant Credit Ltd, Ceylease Ltd and MBSL Savings Bank were to be brought in under the single corporate image of the MBSL. The merger was to take place later this year. The idea, he said, was to make MBSL as a stronger subsidiary of the Bank of Ceylon and as a fully fledged bank. The merger was also meant to raise cheaper capital, improve profitability of the core banking activities and enable MBSL to venture into risk adjusted high return investments with continuous growth, the former CEO said.
http://www.island.lk/index.php?page_cat=article-details&page=article-details&code_title=48012

LBO: Sri Lankan shares closed weaker Wednesday for the second straight day with trading falling sharply and interest seen mainly in low value or speculative stocks, brokers said.

The main All Share Price Index fell 0.55 percent (29.92 points) to 5,384.10, while the more liquid Milanka index fell 1.11 percent (54.05) to close at 4,821.87.

Turnover fell to 376 million rupees, according to stock exchange provisional figures.

Index heavyweight John Keells Holdings closed 195 rupees, down five.

Beruwela Walk Inn was the day’s biggest loser, closing at 120 rupees, down 18 rupees.

Environmental Resources Investments was the most actively traded stock, closing at 15.40 rupees, up 40 cents with 616,673 shares traded.

Asia Asset Finance was also actively traded, closing at four rupees, up 10 cents.

Free Lanka Capital Holdings, another actively traded stock, closed flat at two rupees.
http://www.island.lk/index.php?page_cat=article-details&page=article-details&code_title=48013

* Jaffna ice factory gets US$ 275k

The United States Agency for International Development (USAID), the development arm of the U.S. Embassy, awarded the first grant under its Biz+ program on Friday. This $275,000 grant will help Jeyantha’s Katcovalam Ice Factory expand its ice production from six to 26 tons per day, meeting growing demand from fishermen and traders who transport fresh fish to Colombo and elsewhere, a statement issued by the US Embassy in Sri Lanka said.

The Biz+ program supports local businesses, increasing economic growth and job creation in recovering areas. The program provides grants along with technical and managerial assistance to small- and medium-size businesses.

Speaking at the signing ceremony, Thirunavukkarasu Senthan, CEO of Jeyantha Industrial Park in Point Pedro, Jaffna District said, "We will continue to increase activities and create new jobs as an ongoing process. Ice, cold room facilities and a fisheries harbor are basic requirements for the success of multiday fishing. The common thread is creating jobs while providing a service to the immediate community."

The grant will fund the purchase and installation of environmentally-friendly refrigeration units at a new central facility, and will support localized cooling and ice distribution centers. Biz+ will also provide technical assistance to improve the design of the company’s operations, to help cut costs of wasted cold water.

"USAID’s latest initiative, Biz+, will open up jobs after decades of conflict. This grant will augment incomes of fishermen and fish traders by meeting the demand for ice in the region and benefit others along the value chain, such as transporters," said USAID Mission Director Jim Bednar. "This is the ultimate aim of Biz+: to help improve living standards of vulnerable populations and stimulate the region’s economic growth".

The grant was signed by USAID’s visiting Senior Deputy Assistant Administrator for the Asia Bureau, Denise Rollins. The grant award came as part of Denise Rollins’s three-day visit to the island to review progress of USAID-supported activities.
http://www.island.lk/index.php?page_cat=article-details&page=article-details&code_title=47987

Ramani KANGARAARACHCHI
The development of a vibrant and efficient money and foreign exchange market and a deeper and more liquid secondary bond market would enhance the competitiveness and dynamism of the entire economy. Therefore treasury operations today has become a very important and challenging business activity for commercial banks due to several reasons.

Deputy Governor Central Bank B D W A Silva expressed these sentiments in his speech ‘Treasury and Foreign Exchange Operations' at the inauguration of the five day international seminar at the Centre for Banking Studies Rajagiriya on Monday.

Elaborating on these reasons he said firstly, the world economy is recovering slowly after the crisis but high prices of oil and other commodities is a threat to global growth. Secondly, International financial markets are fragile and concerns in the Euro area including risks arising from high public debt have not yet diminished. In spite of these developments, world trade has been forecasted to have grown by 6.5 % in 2011. In 2012, the growth is expected to be in the same range given slower world economic growth of 3.25 % in 2012,he said.

Also foreign direct investment and remittances have been growing. Many countries have liberalised a large number of capital market transactions allowing domestic entities to borrow from international markets. Hence, the volumes of cross-border capital movement have been increasing. Global foreign exchange market turn over is huge and it is nearing US $ 4 trillion. Of which, the Asia and Pacific share is one fourth. Therefore forex dealings have become a truly challenging profession, and there are new risks with new sanctions.

He said risks can be posed by non-availability or restrictions in the transfer of funds. Financial liberalisation and growing regional trade have increased financial integration and financial integration is generally associated with capital mobility. Yet, it's associated risks have to be anticipated and managed.

Modern treasuries need to set up appropriate dealing room systems in terms of enabling policies, and equipment. It is important to have well trained dealers with necessary competence and equipped with more comprehensive skills, to excel in this challenging environment. Because dealers would be the only interface for the bank's treasury with the rest of the world for any transactions. Dealers need to understand the market intelligence in terms of news and events across the markets and to form views and take positions quickly. there are significant changes in financial market landscape.

Hence, to compete effectively in the more challenging global market place, the vital factor will be having the right skills, knowledge and expertise and the challenge then is to embrace the opportunities as they present themselves and to continuously develop new skills and competencies that will be needed to meet current and future demands.
http://www.dailynews.lk/2012/03/22/bus02.asp