CB shows mixed trends in economic indicators
The Central Bank (CB) of Sri Lanka this week released statistics on economic indicators, comparing statistics from 2005 to 2006, showing trends in various sectors such as agricultural production, imports and exports, energy and banking amongst others.
Agriculture
Rubber, coconut and maha paddy production showed increases from 2005 to 2006, up by 4.6%, 7.5% and 6.1% respectively. Fertilizer and fish production has also showed gains, the strongest being fish up by 56.9%. Tea production during the corresponding period is down by 2%.
Imports/Exports
Statistics show a rise in imports and exports from January to November of 2006 to the corresponding period in 2005. Imports, in millions of rupees, increased by 19.5% and exports increased by 11.6%. Imports of sugar, other food and beverages, non-food consumables, wheat, petroleum, textile and clothing, fertilizer and other immediate goods increased with imports of rice showing the only decline, down 65.4%. Exports of tea, rubber, coconut, minor agricultural products, gems, petroleum products, textile and garments and other industrial exports were all up. The largest increase was in rubber exports, up by Rs.5,829 million or 139.8%.
Essential food
The average retail prices (Pettah Market Prices) of essential foods and commodities show that the price of samba rice, per kilogram decreased in 2006 from 2005 to Rs. 48.45 to Rs. 44.75 down by 7.6%. The price of raw red rice has increased from Rs.35.10 to Rs.36.00. Furthermore, other food items such as dried chillies, local red onions, local big onions, dhal (Australian), eggs and white sugar increased. The price of dried chillies rose from Rs.140 to Rs.241.25 or 72.3%. Only the price of local potatoes declined by 7.3% from Rs.79.55 to Rs.73.75.
Energy
Key indicators in the energy sector saw mixed results from 2005 to 2006. Crude oil imports, kerosene sales and auto diesel sales have declined by 65%, 17.6% and 12.7%, respectively. Other petroleum imports and petrol sales have increased by 111.3% and 11.4%. New registration of motor vehicles which include buses, motor cars, three wheelers, dual purpose vehicles, motorcycles, goods transport vehicles and land vehicles during the same period has increased. Statistics show that registrations of motor cars were up by 61.7% followed closely by three wheelers and dual purpose vehicles.
Telecom
The telecommunications sector which has been growing at a staggering pace is evident by the statistics. Sri Lanka Telecom added 425,307 units from 2005 to the end of September 2006, indicating a 34.2% increase whereas wireless local loop phones like Suntel and Lanka Bell also increased their numbers during the same period by 262,552 units, resulting in 90.6% growth. Similarly, cell phone usage has also increased by 40.3% with 1,366,131 lines being added.
Population
The population grew by 1.1% from 2005 to 2006, indicating an increase of 218,000. The overall unemployment rate declined from the year 2005 to the third quarter of 2006 by 1.3%. Employment in agriculture, services and other sectors declined while employment in the industrial sector improved.
Banking
Total outstanding loans and advances are up 27.8% from end November 2005 to end November 2006 by Rs.182,037 million. According to the CB, loans and advances include loans, overdrafts, bills (import, export and local bills) purchased and discounted.
Total outstanding investments are up by a steep 62.4%. Total deposits in commercial banks are also up by 18.1% or Rs.168,944 million. From end December 2005 to end December 2006, the total number of local active credit cards (cards which are only accepted locally) declined from 73,243 to 61,982. The number of global active credit cards (cards accepted worldwide) increased during the corresponding period from 564,083 to 749,307.
The outstanding balance for local credit cards decreased significantly from Rs.2,331 million to Rs.709 million while the outstanding balance for global credit cards increased from Rs.12,678 million to Rs.20,416. The CB statistics show that the total outstanding balance for both local and global credit cards stands at Rs.21,125 million.
Bankers welcome new single borrower limits enforced by CB
Maximum limits of accommodation that may be granted by banks to the categories of customers such as individuals, companies and groups of companies referred to in the Banking Act are specified as a percentage of capital base of the licensed banks computed for the purposes of maintaining the capital adequacy ratio in terms of the Basel Capital Accord
Bankers have welcomed the move by the Central Bank to issue new prudential requirements on single borrower limits of licened banks with the objective of mitigating the banks’ credit concentration risk arising from granting loans and other facilities to large customers.
The regulator in a statement said that the policy measure proposed in the Road Map: Monetary and Financial Sector Policies for 2007 aims to promote the banks’ risk management further.
Under these rules (defined as Directions), existing prudential requirements on single borrower limit are revised and realigned to encourage and promote better risk management of banks.
Hatton National Bank Managing Director, Rajendra Theagarajah told The Sunday Times FT that such a regulation helps to manage a bank's current ratio of credit.
“To increase the exposure to a viable company, a bank needs to have capital to leverage. A bank cannot keep on overextending disproportionately to one particular group, because it creates too much concentration of exposure to that group.
A good way to tackle this is to increase the available capital,” he explained.
The Central Bank said the accommodations that are subject to and fall within the limits of maximum amount of accommodation specified in the Directions include any loan, overdraft or advance inclusive of finance lease, hire purchase and reverse repurchase agreements against debt securities, investments in debentures and other debt instruments and any commitment to grant any loan, overdraft or advance or such other facility including a commitment to accept a contingent liability. The regulator said it will continue to watch whether the banks’ risk management improves as a result of these Directions and revisit the Directions if necessary to ensure that the objectives if improved risk management are achieved.
Sampath Bank CEO Anil Amarasuriya said that with such a move by the regulator, the single borrower limits of the banks will increase. “We will not be stifled as before and our single borrower limits will go up,” he said.
He also added that unlike earlier, the single borrower limit is the same for all the players, which is good for the industry.
The Central Bank said that the accommodations granted against certain types of securities will be excluded from the computation of accommodations for the purpose of complying with the maximum limits.
These are accommodation granted against the security of cash, gold, Government Securities, Central Bank Securities, Treasury Guarantees, Central Bank Guarantees, Guarantees issued by the World Bank, the Asian Development Bank, International Development Association or any other international institution acceptable to the Monetary Board and Guarantees issued by a bank incorporated in Sri Lanka or abroad having a high credit rating in the range of AAA to A- or equivalent (subject to exclusions limiting to 80 percent and 50 percent based on the ratings).
“Maximum limits of accommodation that may be granted by banks to the categories of customers such as individuals, companies and groups of companies referred to in the Banking Act are specified as a percentage of capital base of the licensed banks computed for the purposes of maintaining the capital adequacy ratio in terms of the Basel Capital Accord,” the statement further said.
Four major limits of accommodation as a percentage of capital base of a bank specified in the directions are 30 percent in respect of an individual, a company or any other entity, 33 percent in respect of a group of companies where the companies are grouped or connected as per the provisions of the Banking Act, increased limits of 36 percent and 40 percent in respect of a group of companies depending on the status of risk management of banks and companies measured on a formula covering the capital adequacy ratio of banks and credit rating of banks and companies in the group.
The statement added that if accommodation is granted to any customers in excess of 15 per cent of capital base of a bank, the total amount of accommodation granted to all such customers should not exceed 55 per cent of total outstanding accommodation granted by the bank to all customers.
“In terms of the Banking Act, the Monetary Board retains the powers to grant permission to banks to provide accommodation up to 50 percent of capital base of banks for infrastructure projects specified in the Directions and such other higher limits of accommodation to any customers on a case-by-case-basis subject to terms and conditions the Monetary Board may deem fit, taking into consideration the national priorities and/or national interest and assessment of risks arising from such accommodation to banks,” it explained.
The maximum limits will not apply to accommodation granted to the Government of Sri Lanka, any licensed bank with a contractual repayment or maturity period of less than two years and Ceylon Petroleum Corporation and Ceylon Electricity Board for a maximum period of two years from the date of the Directions.
“If any accommodation already granted exceeds the new limits, a period of three months is given to reduce such accommodation to the new limits.
Any licensed bank that contravenes these Directions shall not pay dividends or repatriate profits until the contravention is rectified,” the statement said. |
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