The oligopolistic trade practices led by the two state commercial banks to keep lending rates high are breaking up and interest rates are being slowly forced down, Central Bank Governor A. S. Jayewardena said.
Though the Central Bank relaxed reserve requirements releasing an estimated Rs 9 bn into the banking system lending rates have not come down as much as expected, he said.
“There is a sort of a cosy club that seems to be operating,” Mr. Jayewardena observed. “We have two large state banks whose costs are very high and they keep a high margin.”
He was addressing a joint meeting of the Sri Lanka - Japan and Japan - Sri Lanka Business Co-operation Committees of the Ceylon Chamber of Commerce and responding to questions from Japanese and local businessmen.
Even in other sectors, prices were quick to rise but were slow to come down.
“You would expect other banks who are competing to take away the state banks’ business by lending at lower rates but what happens is most of the other banks also try to go along comfortably with the two state banks lending at or near their rate and making a profit,” he said.
There had also been a suggestion that the Central Bank should fix an interest ceiling to compel banks to lend at lower rates.
“I think we should not do that because we have gone away from that control period.”
However now cracks were appearing in the oligopoly.
“At the moment the club has broken its rules in the sense that some banks have reduced their rates and the two state banks are feeling the pinch and losing some of their business,” he said.
Larger customers were negotiating with the two banks for lower rates though small customers were still paying high rates.
“The larger customers are getting better rates,” Mr. Jayewardena said.
This was evident by a significant fall in the prime lending rate.
Mr. Jayawardena said inflation had been kept under check during 1994/1995 though there was a sharp rise in 1996 partly due to the drought.
“We have achieved that through a very tight monetary policy, which was very hard on the economy,” he admitted.
“Our main thrust of economic policy now is not on monetary policy, but we have shifted to fiscal policy and keeping the budget deficit under control.”
Though tight monetary policies are thought to have done much harm to the economy, some observers believe that Central Bank’s other policies such as keeping the exchange rate stable have had favourable impact on inflation while not causing undue problems to exporters. With exporters being allowed to borrow in foreign currency, the attraction of a devalued rupee was also diminishing.
Mr. Jayewardena said price rises have been low during the past six months and monetary growth had also been low.
The sale of Namunukula Plantations to John Keells Holdings has raised concerns among some sections of the tea trade after the John Keells group emerged as the only bidder, raising questions as to the validity of the bidding process.
Originally Forbes and Walker, the controversial Plantations Investment and Management Company (PMIC), a company known as Lipton Taylor Villiers as well as John Keells Group had submitted bids tea market sources said.
However F &W had withdrawn, and Lipton Taylor Villiers had been disqualified due to their inability to submit their financing plan, sources added.
Some buyers were also said to be reluctant to submit a five year development plan fearing that it would be given to competitors.
PMIC had also decided to stay out of the proceedings much to the surprise of market watchers.
When the plantations went on the Boards on Thursday only John Keells were able to bid. John Keells already control three plantations.
The plantations were originally due to go on the CSE board last week but was postponed.
Maturata Plantations was sold to the EPF last week for Rs 45.25.
Though John Keells paid Rs 40.75 per share some in the trade say Namunukula is more profitable than Maturata and the government could have obtained a more realistic price if there was real competition.
The Colombo Stock Exchange conducted the first live tests on it Rs 100 mn automated trading system last Tuesday.
CSE Director General Dylan Moldrich said there were a few minor issues that had to be ironed out, most of which would be completed within the next week.
“With the traders becoming more familiar with the system transactions were carried out smoothly,” CSE Trading Manager Rajeeva Bandaranaike said.
At the moment orders are entered into the system from computer on the trading floor itself. However within the next two months broking offices would be connected to the CSE by radio links enabling trading to be carried out from the offices itself.
“The system is functioning well, except for a few teething problems which will be cleared up soon,” CT Smith Chief Executive Mahendra Jayasekera said.
“The ability to confirm trades to clients instantaneously was a major plus of the new system,” Jardine Fleming General Manager Deva Ellepola said.
The Colombo trading system though small, uses network architecture, one of the first exchanges to do so.
It is also the first exchange to use the Teknekron Information Bus (TIB) software to disseminate information.
Environmental issues play a vital role for the sustainable development throughout the world and specially Sri Lanka, Australian High Commissioner David Ritchie said. “There needs to be a sense of moral obligation in every citizen for waste management,” he added.
He was speaking at a recent seminar on “Solid Waste Management” organised by Environmental and Chemical Engineering Services (Pvt) Ltd., agents for SULO MGB Australia Pty Ltd.
Environmental Engineering Services is hoping to branch out into garbage collection when such services are handed over to the private sector later.
Colombo Mayor Karu Jayasuriya told The Sunday Times Business that there were many interesting proposals being put forward by various private institutions at present. With the assistance of the World Bank, they are hoping to find a long term solution to this problem.
The CMC is also intending to set up a scientifically managed landfill at Padukka in the near future and tenders are being called out at present, Mr. Jayasuriya said.
The CMC will also conduct a cleaning campaign on June 7, he said.
The first waste management products to arrive in Sri Lanka from SULO Australia are ‘wheely bins’ or mobile gargage bins. These light weight, easy to clean, eco friendly bins made of durable plastic, is resistant to heat, rot and chemicals and is said to have a lifespan of twenty years.
They also come equipped with solid rubber wheels and a close fitting lid, which prevents emanation of strong odours, entrance of flies, cockroaches, vermin, pests and rainwater. Environmental and Chemical Engineering Services (Pvt) Ltd., say that it can also be used as a bottle bank or as mobile container to transport chemicals, liquids and sea food. At present, these bins are said to be used by a number of factories to transport their raw material due to its secure lid.
There was untapped potential in Sri Lanka for proper landfill management, generation, of power from solid waste and recycling Frank Gnanam, Regional Sales and Marketing Manager West Asia SULO MGB Australia (Pty) Ltd., said.
Sale put off
The postponement of the sale of a controlling interest in two plantation companies in the Colombo Stock Market raised many eyebrows last week.
However the Treasury boys thought the timing was not absolutely right and that better prices could be obtained at a later date.
Foreign buyers who were eagerly awaiting the sale, however, were not so pleased, and some of them may not even return when the two companies are eventually offered...
Interest rates tumble
A leading finance company last week reduced interest rates on deposits, virtually unnoticed.
But market watchers said the reduction was long overdue, with Treasury Bill rates falling steadily since the begining of this year.
And, what’s more, other finance companies are likely to follow this example...
Tourism boom?
It’s tourism in this country at last on the road to recovery?
Among the optimistic few are those in the airline industry and the usually late national carrier is recording a higher passenger turnover this year.
More over, three other leading airlines are pressing for more flights to Colombo and their requests are likely to be met..
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