Behind
the balance sheet - by KalQlus
Sampath: increases all round
A healthy 177 percent increase in long term lending seems like the bank
has won over some of its competitor's prey.
Market share of long term lending has jumped from 7.3% in '96 to 20.7
in '97. Although the bank's overall lending has increased by 30% it is
still conservative on long term lending over a recovery period of 5 years,
a negative 16% over the previsions year.
The bank's market share of term loans and advances too have increased
from 4.7% in '96 to 6.3% in '97.
This is commendable, considering the slight downward turn in national
terms. All advances by commercial banks have reduced by 0.7 % in '97 -
from 12.8% to 12.1%. This growth is more significant, in the light of the
Chairman's statement that the bank did not market this sector vigorously.
This increase in term lending will generate a higher level of income
during the ensuing year. (Even though the interest rates have shown a downward
trend during the recent past). Coupled with the increase in deposits the
bank would be in a better position to earn high profits.
The bank has been able to maintain a steady growth in this sector over
the past 4 years. The increase in 1995, 1996 and 1997 respectively over
the year 1994 was 36%, 101% and 170%. The periodical growth over the previous
year during the said period was 36%, 47% and 35%.
Savings and call deposits have shown a steady growth over the said period
ie. by 17.2%, 18.4% and 26%. In 1997 5.55% of all domestic savings has
been with the Sampath Bank.
The bank has improved its network through three new branches. The deposits
in the current accounts which do not incur interest cost - free funds,
have shown a positive growth of 27% in 1997.
In rupee terms this is Rs. 269 mn. earning an average interest income
of Rs. 32.3 mn. Foreign currency component too bears another noticeable
increase in its deposits.
The quantum of written off debts have reduced by 81% over the previous
period. Either the bank has been more stringent in its lending or there
had been a good debt recovery system - the latter is more appropriate since
the long term lending has increased considerably.
The bank maintains a healthy liquid ratio between its assets and liabilities
a 1.55: 1 ratio taking into consideration the investments in Treasury Bills
which is now a part of the liquid assets of a bank.
Another positive growth is indicated in the additions to the fixed assets
of the bank, totalling Rs. 199.8 mn. 26% of this computer equipment.
In spite of all the favourable developments mentioned above Sampath
Bank will have to match the maturities of its liablities with the maturities
of its assets since 94% of its liabilities are falling due in 1998, whereas
only 58% of its assests are maturing during the same period.
Hence the gap in this mismatch is nearly Rs. 4 billion. 40% of its advances
are maturing after the end of the said period.
Is the bank hoping to close the gap by short-term funding, specially
during a period where short term funding is more expensive than that of
long term funding.The growth in other income apart from the core business
of the bank is marginal in '97 over the increase in 1996, which is not
very satisfactory especially in a highly competitive field of business
where all the players in the market are after the same prey. Even though
the core business is lending, it has to find more space in niches such
as value added products, fee based activities, diversifications and customer
tailored products and services.
Analysis of the only available information in the annual report to evaluate
the 'productivity' area - the national theme during current period - reflects
fluctuations during the period 1994 to 1997.Operational income in 1997
has increased by 18.2% against an increase of 22% in operating expenses.
During 1996 while the operating expenses increased by 20% the operating
income increased only by 9.7%. During 1995 the increase in operating income
is 46.6% as against 36% increase in operating expenses.
In 1997 the bank also introduced its debit card. This would definitely
have a wider circulation, being owned by all set card holders. Debit cards
unlike credit cards have no other inbuilt charges.
DFCC now plays on a level field
Corporate Profile
By Company Watcher
DFCC Bank will seek to strengthen its areas of competitive advantage
and adopt strategies that are appropriate in a market economy. The Bank
feels that a re-examination of the means of meeting the funding requirements
may be in order.
Commenting on development banking in a market economy, DFCC Bank Chairman
C A Cooray says that it is clear that concessionary lines of credit from
the World Bank and Asian Development Bank are being phased out along with
the onset of the market economy. "Together with financial reforms,
policies are being implemented to have a level playing field common to
all financial institutions. "These institutions have criss-crossed
each other's boundaries so often in other parts of the world that there
is hardly any distinction any more between them. This however, does not
mean that efforts at development have been laid aside. "Clearly, development
whether defined in terms of economic growth or expansion of welfare, involves
the provision of a broad variety of financial and advisory services. There
will be growing demands to be fulfilled as well as new opportunities to
be exploited.
"Any financial institution, banking or non-banking, which effectively
fulfils one or more observable financial need provides a development service
to the community", he points out in his annual review to shareholders.
Referring to the amendments made to the DFCC Act in August last year,
he says that the Bank is now on a level playing field with its competitors
which opens up a whole new market segment for its operations. In an environment
where the Government has embarked on a programme of public sector reform
and divestiture of state enterprises, the Bank sees new opportunities which
were hitherto denied, such as playing an active role in the divestiture
of some of the regional plantation companies.
Looking at the foreign scene, he identifies excessive short term overseas
borrowing, implicit Government guarantees given to financial intermediaries
which encouraged excessive risk taking especially in the property market,
and poor regulations as the main causes for the dramatic melt down of the
Tiger economies, particularly those of Thailand, Indonesia, Malaysia and
South Korea. "It is indeed saddening to witness this debacle hitting
the very countries that Sri Lanka looked to draw lessons from in our march
towards reaching what seems now to be the forgotten definition of a newly
industrialised country.
"The role model we had is now made out to be something that failed.
However, it is difficult to believe in this outright condemnation as these
very countries in the past two decades showed rapid growth and expansion.
Yet, lessons have to be drawn either way from this experience", he
stresses.
Chief Executive M R Prelis, in his review, points out that the momentum
the economy had gathered over the first half of the year (1997) slowed
considerably and although lending rates fell and funds became more accessible,
the anticipated credit expansion did not occur. As such, financial institutions
were left with excess liquidity towards the end of the year.
In such a scenario, he is happy that DFCC Bank ended the financial year
on a positive note reversing the decline in profit of the last two years.
The Bank's post-tax profit of Rs 614 million represents a growth of 30%
and its pre-tax profit of Rs 896 million, a growth of 38%. Profit after
tax including associate companies was Rs 652 million, an increase of 56%.
Mr Prelis views the strategic alliance with Commercial Bank as a partnership
or marriage "as it promises to be a win-win deal which will enhance
shareholder value for both Commercial Bank and DFCC Bank".
The alliance helps expand DFCC Bank's core business of project finance,
provides an access to an extensive branch network which it lacks and enhances
DFCC Bank's profitability.
"The global trend today is against fragmentation and proliferation
of small financial institutions. Instead, the tendency is towards consolidation
and mergers. This is even more important in small economies like Sri Lanka.
"Apart from the synergies that consolidations and mergers release,
they give local companies the enhanced capacity to cope with pressures
of global competition. This then is a longer term justification for the
alliance", he stresses.
Last year, the DFCC Bank launched five new products for the development
of medium and small enterprises, which are a key vehicle in any country's
development strategy. The Bank has made the medium and small industries
a priority in its lending policy and has achieved the position of being
the largest direct lender to this sector.
Appointments
Who is a Probationer?
A probationer has no right for automatic confirmation
on the expiry of the probationary period.
Probation is a period where the employer assesses the conduct and suitability
of an employee for permanent employment. Similarly for the employee it
is an opportunity to assesses the suitability of conditions of service
offered to him. A probationer is a monthly paid employee entitled for leave
etc.
The period of probation is strictly relevant only to the question of
termination in the event of his being unsatisfactory. It is an accepted
fact that the employer is considered as the best judge to decide whether
an employee's period of probation has been satisfactory or not.
On the other hand many people ask whether an employer can dismiss an
employee during the probation period without giving a valid reason. The
answer will be -Yes.
The reason is that an employer is not obliged to give reasons to the
employee when terminating a probationer's appointment.
Normally an employer will take into account whether the probationer
had put in satisfactory service during his probation period and his behaviour
before he terminates a probationer's appointment.
Having said that an employee may ask whether he can claim an automatic
confirmation after the expiry of his probation period. It has to be made
clear the probationer has no right for automatic confirmation on the expiry
of the probationary period.
But in certain instances , provided the employer has given the employee
in writing, the employer is bound to give permanent employment to the probationer.
Exceptions are.
The employer has given the letter of appointment for such automatic
confirmation.
The probationary period has elapsed and the probationer continued to
work satisfactorily
Besides some employers have a habit of placing confirmed employees again
on a second probation period.
When a employee accepted the new probationary employment by signing
the appointment letter containing the probation clause, the employee is
deemed to have accepted the probationary clause that is a second probation
period.
Absenteeism
*. Can an employer dismiss an employee for continuously absenting
from work on the grounds of sickness?
Dismissing an employee is normally allowed for misconduct. However,
absence due to sickness cannot be considered as misconduct, because it
is an act of not coming within the employee's control. Disciplinary action
is appropriate where absence is unauthorised. When the employee is absent
on the grounds of sickness, supported by the Medical Certificates and the
employer is unable to dispute the claim of sickness there is no possibility
to take disciplinary action against such employee. The only remedy available
for the employer in such a situation is to apply to the Commissioner of
Labour for a non-disciplinary termination of the employee concerned.
Provident Fund Contributions
*What are the payments that attract Employees' Provident Fund contributions?
According to the provisions of the Employees' Provident Fund Act, the
employer is required to contribute 12% of the total earnings' of each month
to the Provident Fund and the employee will contribute 8% of the total
earnings. The total earnings include the following payments:
Basic Salary/Wages.
Cost of living allowance, Special living allowance or any other allowance
paid as remuneration for the work performed or to compensate Cost of living.
Payment for holidays (weekly, annual, casual and public holidays).
Value of meals or uncooked food provided including meal money or meal
allowance.
Incentive payment tied to production and piece rate earnings.
Commissions paid for any services by employee.
Any fees paid to employees for the services rendered by them. The payments
which will not attract contributions to Provident Fund includes Traveling
allowances, Entertainment allowances, Rent allowances, Children's allowances,
NRG overtime payments, Bonus and Service charges.
Change of Designation
*Can an employer change the designation of the employee without consent
of the employee.?
A contract of employment contains the terms and conditions agreed upon
by the two parties involved in the contract, namely the Employer and Employee.
Therefore any new term or condition introduced to change a term or condition
already existing in the contract is not valid without the written consent
of the employee.
It may amount to unilateral variation of a contract. Any unilateral
variation of a contract on a fundamental matter is considered as a constructive
termination. However introduction of an additional term or condition, not
contrary to existing terms and conditions can be considered as valid if
it is fair and reasonable.
Disciplinary Inquiries
*Is it compulsory to hold a Disciplinary Inquiry before dismissal
of an employee for misconduct?
It is not compulsory in Sri Lanka to hold a Disciplinary Inquiry before
dismissing an employee for misconduct like in India. However, it is advisable
to hold such an Inquiry for the following reasons:
(1) Punishment without an Inquiry implies that the order is an arbitrary
one made without examining facts of the case and it may influence a Labour
Tribunal.
(2) The principles of Natural Justice require the person to be informed
of charges and give him an opportunity to explain.
(3) At the Inquiry all evidence will be recorded and it will prevent
a witness taking up a different position at the Labour Tribunal.
(4) Recorded evidence at the Inquiry can be used before a Labour Tribunal
to a certain extent when the witness is no longer living or out of the
Island.
(5) Dismissing employees without an Inquiry will create labour unrest
and dissatisfaction among other workers.
Maternity Leave
*Is there any difference in granting of Maternity leave to shop and
office employees and Wages Board employees?
Yes. The employees covered by the Shop and Office Employees' Act enjoy
84 working days as Maternity leave for the 1st and 2nd child and 42 working
days for the third and subsequent child. The employees covered by the Wages
Board Ordinance are entitled for 84 days (including non-working days) of
Maternity leave for 1st and 2nd child and 42 days (including non-working
days) for the third and subsequent child. However, these Wages Board employees
are entitled for an extra facility of nursing intervals under the Maternity
Benefits Ordinance.
Accordingly they should be granted two nursing intervals until the child
completes one year of age and each interval shall not be less than one
hour if no suitable place of nursing is provided at the working premises.
If a suitable place is provided for nursing, each nursing interval will
be half an hour.
Six ways to build a top staff
Be friendly to staff members but don't treat them like close personal
friends. They want you to be the boss, and they want to be employees. It
works better that way.
Tell them everything. And expect them to tell you the same. Shared
knowledge builds loyalty and trust.
Practice Pulitzer Prize plagiarism: Steal only from the best . If
you need help, reach out to your professional community. Someone, somewhere,
somehow will know how to help you.
Invest heavily in loyalty. If staff members know that you' re always
loyal to them, they will give you the same in return.
Realize that fairness-not cleanliness is next to godliness.
Never be too busy to laugh. Nothing gets people through a crisis like
a good laugh- and a manager who is willing to enjoy it with them.
Managing Humans
Treat Mistakes as "Miss-Takes"
When you empower employees it's important to build their self -confidence
during training. One way to do this is by treating mistakes as "miss-takes",
advises Communication Briefings.
When shooting a film, directors simply ask for another take when there's
a "miss-take". They fix the method , not the blame
. Use this same approach when training employees . And understand that
most "miss-takes" come from poorly trained people or misunderstood
goals.
World Executive's Digest.
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'Kotmale' diversifies its products for home and
abroad
Nestled
in the hills of upper Kotmale, Kotmale Swiss Cheese Company's Bogahawatte
Factory may be cited as a good example of how a small dairy producer has
made it big by its grassroots approach.
Kotmale commenced operations in 1977 with just 100 litres of milk per
day and today processes 12,000 litres of milk daily for the commercial
production of milk packets, ice cream, cream and cheese.
In 1978, the company embarked on cheese production and since then there
has been no looking back.
Kotmale Cheese, as well as its other products are among the country's
leading dairy brands.
Kotmale's average daily production today is 20,000 packets of milk,
2000 litres of ice cream and 500 kgs
of cheese.
The company maintains 1500 registered dairy farmers while another 1000
farmers also supply the company regularly.
According to Production Director Jonathan Joseph, the company's emphasis
on reaching out to the grassroots level has paid off in its competition
with rival dairy farms like Nestle.
Whereas in 1977, when the factory commenced operations, only about 100
litres of milk could be obtained per day in the Kotmale valley region,
the company is today able to procure 3500 litres of milk daily as a result
of its extension policy, thus indicating the success of the grassroots
approach.
The factory procures fresh milk from Bogahawatte and other upper Kotmale
areas like Dimbulla, Watawala, Mt. Vernon Estate, Mayfield Estate, Barcaple
Estate and Queensbury Estate.
Milk is also obtained from lower Kotmale areas like Ravanagoda, Maldeniya,
Kalapitiya and Vijayabahu Kanda.
Services
provided to dairy farmers by the factory includes the delivery of cattle
feed and medicine on a credit basis and artificial insemination.
The factory's inseminator handles about 100 inseminations per month.
Mr. Joseph is also keen on promoting locally made cattle feed sold under
brand names like Prima, Gold Coins and Nutria in preference to Poonac,
a residual matter from the extraction of coconut oil.
Cattle feed which comprises an essential mix of various substances designed
to improve milk yield which usually costs Rs. 500 per 50 kg bag is today
provided at a subsidised rate of Rs. 250 to farmers under an Agent subsidy
scheme.
According to Mr. Joseph, Poonac prices fluctuate considerably throughout
the year (Rs. 300-Rs. 800 per 50 kg bag).
As a result, when prices are high, farmers avoid feeding the cattle,
thus resulting in poor yields and irregular supply.
The subsidy scheme, which commenced in 1997 is due to come to an end
within the next few months.
It has however achieved the desired aim of popularizing the product.
The company is also engaged in a joint dairy development project undertaken
by the Faculty of Animal Science and Veterinary Science of the University
of Peradeniya and AgEnt to introduce high milk -yielding grasses.
A number of improved varieties of grasses such as Sogharm Alrum and
Rhodes have been introduced as a result.
Kotmale has also embarked on Research and Development activities and
is planning to introduce a number of innovative products to the market
shortly.
In 1994, the company pioneered the introduction of ripple ice creams
including chocolate, mango and strawberry.According to Riaz Ahamadeen,
a young graduate from Ruhunu University in charge of the entire processing
operation (production and quality control), Kotmale plans to introduce
a number of exotic varieties of cheese such as quarch cheese, cream cheese
and blue cheese shortly.
He observed that blue cheese which is manufactured by adding a variety
of fungus is a nutritious product
with a high protein content and will be aimed at the export market.
He noted that the company has already embarked on trials for canning
processed cheese and will be introducing the product to the market shortly.
He observed that canned cheese which has a longer shelf life is likely
to have a good market potential locally.
The types of cheese presently manufactured by Kotmale includes processed
cheese, Swiss cheese, cottage cheese, Mozerella cheese, Edam type ball
cheese and four varieties of spiced ball cheese, viz garlic, chilli, cummin
and mustard and pepper.
Trials have also begun on another variety of ball cheese containing
essence of chicken.
The company has also begun trials on a number of up-market, value-added
products like low-fat cheese, low-fat milk and skimmed milk and is on the
way to introducing these to the market soon.Kotmale has also undertaken
a comprehensive restructuring of its production process under the able
direction of Mr. Ahamadeen.
This includes the use of microbial-based Halal Rennet imported from
France and Denmark.Unlike the conventional Rennet (Rennin) which is an
enzyme obtained from the stomachs of seven day-old calves, Hala Rennet
is derived from a fungus of the mucor species.
Hala Rennet is more economical and also performs better activity-wise.
Another innovative product expected to have a good market potential
is a high-energy drinking yoghurt to be produced with whey and supplemented
with vitamins and minerals.
According to Mr. Ahamadeen, whey, a by-product of cheese manufacture,
could be made good use of in countries like Denmark and Holland where whey
products are widely consumed, instead of supplying it to piggeries as is
the case today.The product to be named Energy-Plus has a shelf life of
14 days and will be marketed shortly at a very affordable price.
Other consumer products Kotmale produces today includes kitul treacle
and ghee, which also generate substantial employment.
The production of kitul treacle alone is said to generate about 150
jobs in the area.
According to Kotmale Brand Manager Rohan Kaluhendiwela, the company
usually sells about 20,000 packets of milk, 1000 units of cheese and 2000
litres of ice cream daily.
Kotmale today has 15 distributors catering to 4500 outlets.
This is a far cry from 1993 when the company covered only 500 outlets.
In 1993 Kotmale embarked on streamlining its marketing operations.
This resulted in an extensive promotion campaign and paved the way for
the creation of an effective distribution network.In 1994, shortly after
the streamlining, sales showed a growth of 60 per cent.
In 1995 and 1996, the company recorded a sales growth of 20.6 per cent
and 9 per cent respectively while last year sales increased by a further
22 percent.
The company also exports its ice cream and cheese products to the Maldives.
Dartonfield from the dumps to ISO heights
By Dr. L.M.K Tillekeratne Director, Rubber Research Institute of
Sri Lanka
Dartonfield crepe rubber factory which is under the management of the
Rubber Research Board of Sri Lanka, is the first latex crepe factory out
of over 150 crepe factories in the country to obtain ISO 9002 certification
from the Sri Lanka Standards Institution.
Dr. Srilal de Silva, Director, Certification of the SLSI after conducting
the final auditing on June 3 and 4 admitted Dartonfield factory to this
highest quality certification scheme.
This crepe factory was under consideration for privatization in the
early nineties as it was losing over Rs 2 1/2 million a year of the Rubber
Research cess money due to many problems.
But when scientists took over the management in 1993, losses were converted
to profits by minimizing the cost of production of the rubber produced
by cutting down unwanted expenditure and by improving the quality of the
latex crepe produced.
Wastage at all levels of processing including tapping, collection and
fractionation of latex down to the level of packing and transporting the
end product was minimized.
Under the management of the scientists, this factory was manufacturing
only unfractioned and unbleached latex crepe rubber (UFUB) thereby gaining
an additional profit of Rs 4-5 a kg of rubber produced.
From this exercise of manufacturing unfractioned and unbleached crepe
rubber the factory was able to minimize the production of yellow fraction
rubber, which is usually sold as grade 4 crepe rubber.
Further, in the processing of UFUB rubber, the cost of the bleaching
agent which is over Rs.1.50 a kg. was also saved fully while saving tremendously
on overtime and electricity wastage during the removal of the yellow fraction
of the rubber latex by fractional coagulation. Depending on the quality
of latex, fractionation operation is sometimes continued till late in the
night.
Off grades of latex crepe rubbers No. IX and I and even the unfractioned
and unbleached grade of crepe rubber are marketed locally for white shoe
sole manufacture and for rubber thread manufacture.
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