• Kama Sutra for health and 'eternal love'
• Foreign banks to publish accounts?
• Trade pushes Colombo as biggest International centre
• Grain Elevators joins the queue
• Tougher laws for regulation
• Mind Your Business
• State meddling makes bad banking
• Barclays boss calls for more investment in banking
• Everyone's a millionaire at Millennium
• Industrial Relations Forum
• Business Diary
• BDM cricket shop opens in Dehiwala
• New look Caltex has three aims
• Tuticorin to expand port facilities
• Hongkong Bank builds cohesive image
• Thai comes on top again
• Standard Bank's treasurers poll
• The two groups of non–tangible investments

Kama Sutra for health and 'eternal love'

Kama Sutra is the brand name for a popular Indian condom. A controversial film - that drew box office crowds in Colombo - has also been made on the fourth century Indian sex manual. But what connection does Kama Sutra have with tea, unless of course the beverage has some aphrodisiac properties. Tea is well known to have health properties and research shows that it has cancer-treating properties and is good for heart ailments but so far there is no indication that is a s\pard

CB to persuade

Foreign banks to publish accounts?

By Mel Gunasekera

The Central Bank is persuading branches of foreign owned banks to publish their accounts as a step towards promoting sound and efficient banking system.

The Banking Act is to be amended shortly to accommodate these changes, a top CB official said. At present, the CB governor A S Jayawardene is using 'moral suasion' (persuasion) on the foreign owned branches to disclose their accounts voluntarily, as it would take a while before the new Act becomes a law, he said.

There are 26 licenced commercial banks in Sri Lanka, of which 8 are locally incorporated domestic banks, and the rest are a branch of foreign banks.

The 1988 Banking Act requires that foreign banks disclose their audited balance sheets and profit and loss accounts in respect of their business in Sri Lanka by May 31st each year to the Director of Bank Supervision.

The Act does not however, contain statutory provision requiring branches of foreign banks operating in Sri Lanka to publish their respective annual audited accounts. Foreign banks that are operating in Sri Lanka function as branches of foreign banks and the financial accounts of such branches are consolidated with the accounts of their respective head offices and published in the country in which such banks are incorporated.

The legal loophole provides for uneven playing field amongst the 26 commercial banks. The depositing Sri Lankan public too left unaware on the financial condition of the foreign banks they are depositing with. The core principles for effective banking supervision recognises that sound accounts and transparent financial information is a fundamental pillar of strong banking and indeed, financial system, Director Banking Supervision Y A Piyatissa said. "The CB has taken st\pardIn this approach the primary responsibility rests with the banking supervisor as he has regular access to confidential financial information which is not available to outside sources. Accordingly, a revised prescribed format has been introduces incorporating the Sri Lanka Accounting Standards No: 23, he said.

Foreign banks welcomed CB's decision but expressed reservations as to what extent detailed accounts should be disclosed to the public.

"We have no objection to publish our summerised balance sheet as it's done by all the quoted commercial banks in Sri Lanka," Hong Kong and Shanghai Bank Financial Controller, Sriyan Cooray said.

"Our banking industry is fairly advanced in comparison to some of the South Asian countries. However, on this particular issue, Sri Lanka has lagged behind countries like India and Pakistan who already have these mechanisms in place," a top Standard Chartered Bank official said.

Trade pushes Colombo as biggest International centre

By Feizal Samath

Colombo is being aggressively promoted as the world's biggest international tea trading centre by tea promotion authorities, brokers and the export community, but opposition from local producers may stall progress in this field, industry sources said.

The creation of an international centre in Sri Lanka assumes greater significance in the light of last month's demise of the London tea auction, started in 1750, and following reports from Dubai and Pakistan that both are considering auction centres.

The plus point for creating the world's biggest tea trading centre here is enormous in the context of avenues opening up for new blending and packing companies, additional employment, foreign exchange earnings and a host of other services that would come on stream with an international centre.

At present, Colombo is the biggest tea auction centre - even with the existence of the London auction which had lost its authority in recent years until it closed up- but the tea trade and tea promotion authorities want the government to free the exports of tea so that Colombo would advance to an international blending and packing centre, the sources said.

A small quantity of imported tea - 10 million kg of CTC types and speciality teas like Darjeeling, Assam and green tea - is allowed each year for blending with local varieties. More than 50 percent of Sri Lankan tea exports are in value-added form - packeted and blended tea.

Trade sources say that gone were the "good old" days of tea consumers seeking country-specific teas like the famed Ceylon Tea from overseas stores. Now it is branded teas that consumers look for like internationally-known Liptons or "Dilmah" - a Sri Lankan brand sought after in many overseas markets.

Last year, a tea trade-backed proposal by the Sri Lanka Tea Board to allow 10 percent of tea exports (ie. 26 million kg of 268 million kg which was the total export quantity last year) on a trial basis for a period of six months was rejected by the Ministry of Plantation Industries. Trade sources said the Ministry said "no" to the plan following objections by big producers (plantations companies) and smallholders who fear that an influx of imported tea will hurt pric\pardBut the fact that the annual 10 million kg of imports has not hurt local prices is adequate proof that imports are unlikely to impact on prices," a trade source said.

In the light of the shutdown of the London auction and the prospects of two other tea centres being opened in the world, the Sri Lanka Tea Board has reactivated its old proposal and submitted fresh suggestions to the government last month.

Trade sources said that the board paper notes that if Colombo is not developed as an international packing and blending centre in addition to allowing other producer countries to sell their tea here - like what the London auction centre did - the country will lose on a chance of a life-time to Dubai and Pakistan.

According to reports reaching Colombo, authorities in Dubai are actively pursuing a plan to set up an international auction centre and delegations are to visit Sri Lanka, India and Kenya to study the way auctions are conducted.

The sources said that Dubai in the United Arab Emirates (UAE), which already has some tea blending and packing firms operating there, realises the potential of such a tea trading post in view of the sizable Middle East markets and its close proximity to the Commonwealth of Independent States (CIS), where it has MFN (Most Favoured Nation) status - a status that Sri Lanka does not enjoy.

The CIS is Colombo's biggest tea buyer. The sources said that Pakistan was also considering setting up a tea auction centre in view of its growing domestic demand for tea. Pakistan is now the third largest tea consumer in the world and is set to be the world's biggest consumer by around 2010-2015.

Trade sources note that Colombo was now ideally positioned to play a role as the world's biggest tea trading centre but could lose out on this opportunity if tea auction centres in Dubai and Pakistan take off before Colombo gets activated.

The Tea Board proposal also includes a plan for trading in the US currency, which would however have to get Central Bank sanction.

Grain Elevators joins the queue

Ceylon Grain Elevators (CGE) is expected to issue Rs. 200 mn debentures to fund its on-going Rs. 360 mn expansion programme, market sources said.

CGE was earlier contemplating a rights issue or preference share issue. A rights issue would drive CGE's share price up. With the market not doing well, the CGE management has decided against it and instead opted for a debenture issue, sources said.

Analysts say, CGE would opt for a long-term debenture as interest rates are low and it would put less strain on their balance sheet, unlike a short-term debt.

CGE has a strong balance sheet and has achieved 'blue chip' status. Hence should be able to raise the required capital easily. "Its credit worthiness should give them a better rate," they said.

The issue is expected to come out in August.

CGE was incorporated in 1982 following an agreement between the Sri Lankan government and Prima of Singapore.

The company recorded an after-tax profit of Rs. 204 mn in 1997/98. First quarter profits for 1998 was Rs. 95 mn. Over 75 per cent of its turnover come from feed sales and it currently controls an estimated 60 per cent of the 308,000 tonnes a year feed market. CGE also breeds day-old-chickens, shrimp farming and trading operations via its subsidiaries.

CGE also runs a lucrative transshipment business, where grain is imported in bulk, bagged and re-exported to overseas market. Presently, the business is carried out in a small way and accounts for less than 10 per cent of its turnover. It's entirely a pure dollar operation, an analyst said.

The poultry industry grew by 23 per cent upto 1997. With an expected annual average growth rate of 11.5 per cent from now until year 2000, analysts say CGE may use the money to expand the transshipment business and storage capacity for the growing poultry industry.

Tougher laws for regulation

A senior banker has called for the strengthening of banking legislation to meet the new challenges in the area of banking supervision and bank regulations.

The changes should be made to provide for greater care in permitting entry of new banks, effective internal governance, new prudential requirements to be imposed when required, for appropriate corrective action to be taken when a bank is in difficulty, and for the provision of a speedy exit procedure for insolvent banks, Executive Director Central Bank, Manik Nagahawatte said.

The CB should formulate a more comprehensive licencing system, which would explicitly set out in detail the requirements of a due diligence exercise that should be carried out before the issue of new banking licence.

"Though the law provides for a due diligence process by implication, there is no specific requirement as to the matters that should be examined in the course of the process like suitability of major shareholders, directors and other key personnel, the capital adequacy, community needs and the compliance with the Banking Act and other provisions of law," he said addressing a recent banking symposium.

While the Banking Act contains provisions for cancellation of a banking licence on certain specified grounds, the Act does not provide enough muscle for the banking licence to be withdrawn if the Act is violated at any given time.

"I suggest the failure to comply with the Act should be made a ground for the cancellation of a licence," he said.

To ensure safety and soundness of banks, the major shareholder, directors and managers should be fit and proper persons. In this context 'fit' would refer to competence and 'proper' to character and integrity.

The Act has not adequately emphasised this requirement, though it could be implied from the provisions of the Act.

"I suggest the Act should be amended to give emphasis to the requirements that major shareholders, directors and manager are fit and proper persons and for the supervisory authority to remove any persons who do not meet with the criteria".

If the supervisory authority is to function effectively, it has to be conferred with adequate capacity, authority and independence.

If an efficient regulatory framework is to be established, it is inevitable that a substantial degree of discretionary authority is vested in the supervisory authority.

Mind Your Business

by Business Bug

Demanding dues

The bank run by the people is busy preparing for litigation to recover millions.

Now, orders have gone out from the top to the other bank in Ceylon to do likewise. Find the defaulters and get them to pay or charge them, the bosses have been told. So, we will hear more stories of more people being hauled before courts shortly.....

Stock boost

Colombo's stocks are hovering around the 600 level and brokers are a worried lot.

Will a successful SAARC summit, with the world's media waiting to see Sharif embrace Vajpayee send the stocks soaring? Unlikely brokers say. This is because the announcement postponing provincial council elections will have to follow soon after and that would dampen any positive sentiments.

But, if indeed there is an Indo- Pak reconciliation of sorts, investors will be back in Delhi and Karachi and could spill over to Colomno, they say......

ITN in the Sun

The announcement last week that the TV station that was supposed to be independent was to be privatised has excited many in the industry.

The station is the first in the country and boast of facilities that few private broadcasters can match, they say.

And among those interested are the people who worship the sun, and they will definitely make a strong bid, we hear......

State meddling makes bad banking

President Chandrika Bandaranaike Kumaratunga has called upon the two state banks to expedite loan applications of, as reported in the media, "poor and genuine entrepreneurs as money has already been released for that purpose."

The President was addressing the managers of the Bank of Ceylon at a seminar recently.

She said that directives had been issued to the managers of the two banks to approve loans to the needy rural entrepreneurs but the banks had failed to grant loans to them.

It is not unusual for members of the government hierarchy ( not only of this government ) to comment on the activity ( or non- activity ) of the state banks. When such comments are made by such eminent persons, they take the form of pronouncements.

Some years ago a Cabinet Minister in charge of finance and banking told Parliament that the two state banks were insolvent. Later an astounding proposal was put forward by the Minister of Justice and Constitutional Affairs and Deputy Minister of Finance.

He said that the government intends to relax the secrecy provisions applicable to the two banks bringing in amendments to the relevant legislation which enshrines the time- honoured secrecy obligations of banks.

The reason for this extraordinary proposal, according to the minister, was that by publishing the names of the defaulters they would be induced to pay up the large loans which had not been repaid.

He did not say that if the defaulters are taken to court their names would become public knowledge and in such circumstances there would be need to do away with the secrecy provisions in the banking laws.

It is well known that the two state banks have extended credit without due care and prudence. As the Presidential Commission on Finance and Banking observed "the lending operations of the two banks to companies and individuals were sometimes not based on strictly commercial considerations.

"Also the banks were directed to grant facilities to state corporations, sometimes supported by written or oral guarantees. However, such guarantees were seldom honoured promptly and in the manner desired by the banks".

The point we wish to make is that the pronouncement, to which we have referred, smacks of government interference in the matter of the extension of credit by the two state banks.

It needs to be recalled that in 1993, the two state banks signed an agreement with the Finance Ministry Secretary, which was part of the restructuring of the two banks, to enable them to have a commercial focus.

The government agreed not to intervene in the daily operations of the two banks; but that if the government required any loans to be granted which would not normally be granted on purely commercial criteria, the government will provide a time- bound written guarantee for the amount of the provisioning which has to be made in terms of the Central Bank's guidelines on loan provisioning.

This means that if the two banks grant loans to "needy rural entrepreneurs" as, according to the President, they have been so directed, and the borrowers default the government would have to meet the provisioning needs of the two banks. Was this envisaged when the directives were given?

In fact, the government taking responsibility for loan repayments by way of time-bound guarantees is bad banking. Loans should be granted after due appraisal of the purpose for which they are sought and an assessment of whether the prospective borrower will be able to repay the loan.

It is also bad banking because the banks would grant loans at the behest of government. The whole thrust of the Agreements betrays a lack of understanding (or a refusal to understand) of the role of banks as financial intermediaries who should be left alone to devise and implement credit extension schemes.

The agreements were, as we have said, a part of the restructuring of the two banks and it was undertaken to make these two institutions financially viable without resorting to privatisation.

The question of privatising the two state banks has cropped up from time to time and it would appear that the government is not in favour of privatisation.

It needs to be noted in this regard that in its 1996 annual report the Central Bank advocated the privatisation of the two state banks in order to enable them to improve their operational efficiency.

Restructuring of the banks, said the Central Bank, would be second best. However, privatisation has not taken place. Will it ever? There is reason to believe it would.

In answering a question from a member of the audience, the President is reported to have said that conforming to today's global economic trends, privatisation was now necessary, but not of the two state banks.

But she said "may be in five years from now I might change my mind, if I do continue to be the minister of finance.

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