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The government had doled out Rs. 2.8bn last year to keep the Bank of Ceylon and People's Bank afloat, demonstrating the high costs of the state getting into business.
In 1993, the government had to strengthen the balance sheets of the two banks by pumping in Rs. 24,088 mn to make up for bad debts. These loans were reportedly prompted by government influence.
However as the government did not have immediate cash resources to make good the deficit, the Rs. 24 bn was provided in the form of long term restructuring bonds, which the two banks were assumed to have purchased from the government.
As a result the government is compelled to pay interest each year on these bonds. The interest commitment for 1995 was Rs. 2,891 mn, according to the latest Central Bank annual report.
This amounts to Rs. 156 for every man, woman and child in the country based on the mid-1995 estimated population of 18.5 mn persons.
The two state-owned banks are also blamed by banking analysts for the high lending rates prevailing in the country.
They say the banks maintain, wide interest spreads to make up for high operating costs, enabling private banks to charge high interest rates as well. This cartel-like scenario is the exact opposite intended by proponents of state ownership, who hoped that government-owned businesses would provide goods and services at lower prices than the private sector.
In contrast to the Rs. 2.8 bn paid out to the two state banks, the expenditure incurred for providing emergency relief and rehabilitation of displaced persons in the North and Eastern provinces was only Rs. 2.1 bn. The fertilizer subsidy given to farmers amounted to Rs. 1.3 bn.
The entire interest commitment on account of the Rs. 345 bn worth of foreign debt was only Rs. 6,162 mn.
The payments to the two state banks were almost equivalent to the entire Rs. 3 bn raised by the Public Enterprises Reform Commission during the year.
However as at the end of 1995, the two state-owned banks had provided Rs. 36 bn credit to the government. The total owed by the government to the state banks (including the restructuring bonds) was Rs. 60 bn according to Central Bank data.
Sri Lanka has exported garments to the value of Rs. 88,140 mn mainly to the United States in 1995, according to data released by the statistics division of Sri Lanka Customs. Tri-Star Apparel Exports (Pte) Ltd., was the single largest exporter clocking up Rs. 3,209.36 mn worth of exports, followed by Mast Lanka (Pvt) Ltd., (Rs. 2,135.97 mn) and Smart Shirts Lanka Ltd., (Rs. 1,775.16 mn).
Total exports including textiles for 1995 amounted to Rs. 94,946 mn according to Central Bank data. This was a sharp rise from the Rs. 76,685 mn recorded in 1994.
The United States had bought Rs. 53,901 mn worth of garments, followed by the United Kingdom at Rs. 11,754 mn. Germany came in third buying Rs. 7,791 mn worth of Sri Lankan garments.
A decade ago (1985) Sri Lankan garment exports only amounted to Rs. 6,881 mn.
According to Central Bank data, quota limits to the USA had been increased by 9 per cent in 1995. However most of the growth last year had come from non-quota garments. Total textiles and wearing apparel exports to the USA had increased by 21 per cent. Garment exports under quota had risen by 6 per cent, while non quota item exports had risen by 23 per cent.
Quotas to the EEC were raised by 7 per cent and utilization had risen by 11 per cent, the Central Bank said. Sri Lanka had also been able to enter the highly competitive Japanese and Korean markets which are completely free of quotas.
Overall the share of non-quota items within the textiles and garments sector exports had risen to 50 per cent from only 43 per cent a year before.
A total of 629 garment factories were in operation at the end of 1995 providing employment opportunities to 232,000 persons. This includes 160 factories in operation under the two hundred garment factories programme which provided 76,903 employment opportunities. Export earnings from these enterprises amounted to Rs. 32.9bn.
Meanwhile export oriented textile manufacturers had also registered growth in 1995, the Central Bank annual report said. However some textile manufacturers who cater to the local market had suffered a setback due to the reduction of tariff protection and the flow of smuggled textiles.
"Intrad '96" Industrial and Trade Exhibition will be held from May 31 to June 2, 1996 at the BMICH. It will be conducted by the National Chamber of Commerce of Sri Lanka in association with the Ministry of Industrial Development and the Ministry of Internal and External Trade.
With 1996 being declared the 'Year of Productivity' the event focuses on the growth in trade and industry, said Tilak de Zoysa, President of the Chamber, at a news conference. He said this was the first time that a Chamber in Sri Lanka was organising a trade exhibition such as this one.
The principal sponsors of this Exhibition are the Development Finance Corporation of Ceylon (DFCC) and the National Development Bank (NDB).
"So far, the response has been beyond our expectations and we are ready for about 200 stalls", said J.C. Savanadasa, Secretary General of the Chamber. "This would be opening the door for foreigners to come and see our potential and strength", he added.
There would also be a two day seminar on 'Productivity', held on May 29 and 30. This would consist of Japanese Resource Personnel as well as practical case studies by local companies.
President Chandrika Bandaranaike Kumaratunga will formally inaugurate the Fair on May 31.
A Canadian company has been given the go-ahead to lay the groundwork for setting up a rating agency in Sri Lanka, Central Bank sources said.
The Asian Development Bank funded project began several years ago and at least four companies had initially expressed interest, financial sources said.
These included Standard and Poor's Corporation, Credit Rating Information Services of India (CRISIL), Japan Bond Rating Services, and Canadian Bond Rating Services (CBRS).
A CBRS representative in Colombo said the company had been given the mandate to begin the first phase of the feasibility study. A team from CBRS is due to visit the country in next month.
"CBRS has experience in setting up rating agencies in other countries", he said. "We have experience in emerging markets such as Brazil, Mexico and Venezuela".
Ratings are expected to give a boost to the debt markets of the country as they give an unbiased opinion on the issuer's ability to pay back borrowings.
The CBRS representative said the Sri Lankan operation would serve as an entry point to Asia. "CBRS is interested in entering the Asian capital markets. As a result of a preliminary report prepared by me, we believe we can set up a viable operation here", the representative said.
The NDB and DFCC will post improved results in 1996, despite lower loan growth, Crosby Securities has said.
Though loan growth is expected to be around 10 per cent in 1996, improved spreads will help boost profits.
Spreads are expected to widen, due to low interest foreign credit lines opening up. Last year the Asian Development Bank froze a US $ 75mn line pending EPF investment in the equity market.
The two development banks are expected to focus on lending to infrastructure development projects with the government calling for increased private sector participation in power and telecommunications. This will make up for lower loan growth in other sectors.
The uncertain economic environment was blamed for the slow loan growth, with wide gap between loan approvals and actual disbursements. In addition especially, in 1994 a number of large corporates had prematurely repaid loans after raising funds from the equity markets. Others had used funds raised from debt instruments such as commercial paper to repay loans, when interest rates fell.
"Since most lending is at fixed rates, determined when the loan is approved, it was more viable for corporates to retire debt by issuing such intruments than to pay high interest", Crosby Securities said.
The two banks are expected to profit from leasing due to high margins but short term lending such as bills discounting is expected to be pruned down.
Demand for liquid nitrogen has risen sharply owing to BOI companies manufacturing electronic components, a leading manufacturer of liquid nitrogen said last week.
The availability of high purity nitrogen at low cost had provided an added incentive for electronic component makers to locate their plants here, Ceylon Oxygen Chairman R.N. Hapugalle said last week. Nitrogen is used in the industry to create an inert environment where sensitive electronic components are assembled.
The Board of Investments recently announced a package of incentives for the setting up of hi-tech ventures in the country. This is expected to boost demand for nitrogen in the future.
Officials said nitrogen use has seen an annual growth of 30 to 40 percent in recent years. In addition to electronics the packaging industry, especially milk powder, had been a major growth area.
Ceylon Oxygen General Manager O.M. Rodseth said investments in new technology had seen cost of production fall sharply, despite steadily rising electricity prices, which formed the major cost component.
New equipment had enabled power consumption to be lowered to 2.1 kilowatt hour per cubic metre, from 4 kilowatt hours.
Since the company was privatized in 1991, Ceylon Oxygen had invested Rs. 243 mn in new technology and modernization. In 1995 capital expenditure had amounted to Rs. 89.3mn.
The company also makes carbon dioxide in liquid and solid form (dry ice) liquid oxygen for industrial and medical uses and supplies welding equipment. It had also diversified into the electro-medical equipment.
Though the company was criticized in the immediate post privatized year raising retail prices of its products, it had since been able to bring down prices by around 20 percent in some areas, company officials said.
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