26th May 1996

Counter move to Charter

By Ruwini Jayasinghe.

In a counter move to the vehemently opposed introduction of a workers' charter, The Ceylon Chamber of Commerce, representing the private sector has presented a draft of the Employment Relation Act to Labour Minister, Mahinda Rajapakse.

The act, which chamber officials claimed was more equitable to both workers and employees has not yet been studied by labour unions.

The draft act calls for the deregistration of labour union for offences like unfair labour practices i.e. resorting to violence, damage to buildings, plant machinery, arson etc. It also requires written notice at least 14 working days prior to any union action.

A main proposal is the setting up of a National Productivity Council to determine remuneration, term and conditions of employment and any other factors connected with productivity.

The tripartite representation on the council, is to consist of private sector representatives, three trade union representatives and labour, industries and Trade Ministry representatives.

Some safeguards for employees and especially casual employees have been included in the section dealing with employment contracts in the draft act. Unfair labour practices have been listed at length both from the point of view of employer and employee.

Rejecting the mandatory recognition of labour unions a key factor in the proposed workers' charter, Chamber Chief Channa Gunasinghe told the media last week,” recognition of labour union is not universal. This has been thrust upon us" Answering questions from the press Mr. Gunasinghe however said that nearly 90% of their 495 members had recognised labour unions. These unions have a membership of 40% of the total non-executive workforce, who consented to membership by a secret ballot. The Chamber has 30 affiliated associations and 20 bi-lateral councils in addition.

Calling the proposed workers' charter lopsided and weighted towards the worker, Chamber officials said they wanted legislation that would promote industrial harmony and safeguard the interest of both employer and employee.

Another sore point is part III, para H, page 5 of the Charter which states that in case of bankruptcy, the first charge should be for worker's payments including EPF, ETF gratuity etc.

Lankem Ceylon Managing Director Mr. Gunasinghe said that banks are worried about this clause which could affect bank financing of business projects in future. However, pro workers charter thinking is that this issue should be taken up with commercial bank on a separate platform, and protection to worker's payments be given priority in case of bankruptcy.

The existing Termination of Employment Act is draconian and employees cannot be terminated on grounds of inefficiency, Mr. Gunasinghe said. Termination of employment and Terms and Condition of laying off staff and compensation are dealt with more equitably in the Employment Relations Act Mr. Gunasinghe claimed.

He said that some foreign investors have voiced their concern over the proposed Workers' Charter at investment forums. However the government's privatisation programme tells another story with some of the largest foreign investors in the country like P and O and Royal Dutch Shell investing in Sri Lanka after the workers' charter was formulated.

Mr. Gunasinghe said that the charter is most worrying to smaller investors who run highly labour intensive operations.

Chamber officials also wanted labour unions held responsible for unfair labour practices and duly penalised. "What we are against is wild cat strikes," said Deputy Chamber Chief and Carsons MD Mano Selvanathan.

Chamber officials also protested against the scrapping of private provident funds and the introduction of pre-shipment inspection on all imports.

The abolition of private provident funds will reduce capital formation in the private sector, they said.

Employees will lose their fund benefits, they added. New Employees will lose their right to withdraw their contributions, when they leave their place of employment. EPF can be collected only at retirement age of 55.

At present employees who contribute to private funds are permitted to housing and distress loans against their fund.

Some employers permit life insurance premium to be set off against their individual funds. ‘The 57 private funds now operating will continue, but formation of new private funds are not permitted.

Chamber officials pointed out that the return on investment was higher in private managed funds. For example the Mercantile Service Provident Fund (The largest private fund) has a 16% return on investment while the Government EPF has a 10% return.

Pre shipment inspections which are supposed to facilitate clearing procedure are most likely to result in the reverse happening, officials said.

Chamber officials warned that the inspection charge of 1/2 % of the value of the shipment will be put onto the customer, causing a general increase in commodity prices.

They added that there were only a handful of surveyors and their services were not easily obtained. They said that pre shipment inspection has failed in countries like Pakistan and Indonesia due to rampant corruption. The Chamber says that the government should bear the cost of pre shipment inspection expenses. It is understood that this scheme is a relief measure in response to a strong lobby by a large scale domestic industry that has been badly hit in recent times by wide scale smuggling.

Despite decline in profits, HNB vows to keep momentum

Rural and development financing sustains the bank

By Ruvini Jayasinghe

Transparency in operations seems to be a contagious concept. Taking a cue from the People's Alliance policy of transparency in governance, some establishments set up by the government itself, like the Public Enterprise Reform Committee (PERC) talk of transparency in the process of privatisation. And now it's spreading to the private sector.

Last week, Hatton National Bank (HNB) made their first ever corporate presentation to stock brokers, fund managers, financial sector officials and members of the fourth estate.

Despite a decrease in both pre and post profits, in their first quarter for 1996, HNB's management team, headed by Managing Director, Rienzie T. Wijetilleke were optimistic of sustaining or improving their last year's performance.

The bank's pre tax profits in the 1st quarter had dropped 7.2% from Rs.133 mn in 1995, to Rs. 124 mn in 1996. Post tax profits were also down from Rs. 119 mn in 1995, to Rs. 102 mn in 1996. Turnover, however improved from Rs. 775 mn in '95 to Rs. 1 billion in 1996.

Drop in profitability was largely due to some large projects funded during the past 18 months, running into some problems. Interest, on these loans were not paid during the first quarter of 1996, Mr. Wijetilleke said. The projects are not going to be abandoned, but only slowed down, he hastened to add.

The Bank's Assistant General Manager, Corporate Planning and Finance, Nihal Kekulawela, who presented the bank's forecast for the next three quarters of 1996, said however that the first quarter profits were in line with forecasts.

The bank's growth this year may be limited to a modest 10% because of a general slowdown in economic activity and squeeze in interest spreads, Mr. Kekulawela said.

Although the bank has consistently maintained spreads of around 6% to 6.5% spreads are expected to drop to 5.5% to 6% this year, Mr. Kekulawela added.

In a bid to reduce their financial cost of funds, HNB has embarked on an aggressive rupee deposit drive, mobilising Rs. 900 million in the 1st quarter of 1996 only. The bank will continue to introduce a series of low cost deposit schemes, in a move to shift their deposit base from high to low cost funds.

Deposits constitute 92.5% of HNB's fund base, while borrowings are 7 .5%.

The bank's unprecedented loan growth in 1995, mainly from out station network is expected to slow down this year, reflecting economic slow down and is in keeping with HNB's strategy of consolidating lending activities. Exposure levels to industry and commerce have remained static and the bank expects to maintain exposure at current levels, Mr. Kekulawela added.

Adopting conservative lending policies the bank hopes to maintain a below 5% ratio of non performing loans to gross loans. The current ratio is 4%. Mr. Kekulawela added that the bank expects their loan loss provisioning to advances, to be around 2% by the year end.

At 75% the bank's advances to deposits ratio is low compared to other banks, Mr Kekulawela claims.

The bank is comfortable with their capital adequacy ratio of 10.4% in 1994 and 1995 which is well within adequacy norms, Mr Kekulawela says.

In his opening comments, Managing Director, Mr. Wijetilleke said that just as much as some development banks were moving into commercial banking. HNB was making its commitment stronger to development banking. He said that rural financing and development financing at macro level had in fact helped them to sustain themselves even during the country's bad periods. Mr. Wijetilleke said the bank had a 97% recovery rate on advances.

On long term objective is to build entrepreneurship. Our strength is our strong loan portfolio, offering a variety of products, he said.

On an independent analysis of the bank's performance last year, Naushad Fareed of Allied Phillips Stock Brokers, highlighted some facts and figures that investors may look at critically.

Mr. Fareed pointed out that while the bank's loan growth had increased from 12% in 1994 to 28% in 1995 net profit growth had declined from 23% in 1994 to 9% in 1995. He said that advances have grown at an alarming pace of 44% to 29% growth in deposits, in 1995.

He added that the bank had a weak capital base and suggested considering capital restructuring in the form of a rights issue or non rating share issue etc.