Furore over Central Bank advertisement

A Central Bank warning last week that certain companies accepting investments from the public were neither registered or licensed by the authorities has drawn a sharp response from the institutions concerned, with some even threatening legal action.

The warning was in a Central Bank advertisement, which named 27 companies, and said they were not licensed under the Banking Act No. 30 of 1988 or the Finance Companies Act No. 78 of 1988 for the purpose of accepting deposits from the public.
The Central Bank said it was in response to queries from the public whether it had registered or licensed such institutions which raise funds from the public directly as deposits or in a manner akin to deposit taking, i.e. on an undertaking to repay in cash or in kind.

M.B.D. Silva, a director of Okanda Finance (Pvt) Ltd., said that at the moment they were in the process of instituting action against the Central Bank, for which they were meeting with their lawyers.

He said that they do not accept deposits but credit investments, which is different from deposits.

"The Central Bank has confused the whole thing," he said, adding that the bank's action would have been valid only if they accept money by way of deposits.

"We are going to go ahead with our business of borrowing from various sources," he added.

Mrs. L.K. Gunatilake, Director of the Central Bank's Department of Supervision of Non-Bank Financial Institutions, said that the notice was merely a response to repeated requests by the public as to whether these institutions were registered.
She said that it was impossible for the Central Bank to look into each of the institutions separately and the notice was published merely to inform the public that these companies were not registered under the Acts.

She stressed that they were in no way trying to dissuade the public from depositing or investing in the companies but only to inform the public that they will be depositing money at their own risk.

Tamara de Silva, the assistant manager of investments at Panadura Finance and Enterprises Ltd., said that their scheme too did not fall within the definition of deposits but was called a 'project participation scheme'.

It is an investment, she said, adding that "we give guaranteed profits" on those investments. Panadura Finance was also under the Ceylinco group and therefore had the backing of the group as well. A.R. Dissanayake, managing director of Help Green (Pvt.) Ltd., expressed confusion as to why the company had been named in the list. "We are not a financial institute," he said. Their business involves the purchase of land and its development for tea planting. Later they sub-divide the land and transfer ownership of the property to interested buyers. Dissanayake said that they were in no way involved with deposits and the public notice had created a negative impact on the company. Brigadier Neville Fernando, CEO of Touchwood Investments Ltd., said, "we categorically deny that we are a finance company and we don't take deposits."

He said that they required neither the authority nor the licence of the Central Bank for the operation of their business because they were a Board of Investment approved company as well as being listed on the Colombo stock exchange.

The company was involved in plantations and had at no instance stated that they were a finance company, according to Brigadier Fernando. "I don't know what prompted the Central Bank to say this," he said. Adding that their company had a lot of backing from many institutions, including government institutions.

He also said he felt that the public would not be misled by the notice because they were wise enough to realise that it was not a finance company. (RC)

Male's new HSBC ATM opens for business

The first HSBC Automated Teller Machine (ATM) was declared open by Mohamed Jaleel the Minister of State for Finance and Treasury on January 15, HSBC's Colombo office said.

He formally opened the ATM by making the first official transaction in the presence of MMA (Maldivian Monetary Authority) officials, Mark Humble, Chief Executive Officer HSBC Sri Lanka and Maldives, Sarath Weerakoon, Manager Malé Branch and several customers.

Opened recently, the Malé branch is one of more than 8,400 offices of the HSBC Group's worldwide branch network - a network that spans some 81 countries and territories.

Through the HSBC ATM network, customers have easy and quick access to their funds from around the world.

The ATM can be accessed by customers carrying cards compatible with GlobalAccess, Visa, MasterCard, and/or the Cirrus and Plus networks.

Political neutrality important for economic growth

Small countries should always maintain neutrality in politics and not try to play too prominent a political role as it would be a barrier to economic development, Yves Mersch, the Governor of the Central Bank of Luxembourg, said last week.

"Small countries should not play too prominent a role because you have to pay a big price economically," he said speaking at a public lecture on "How small open economies survive is a competitive environment" held at the Central Bank's Centre for Banking Studies.

He said that it is not possible to focus on the economic as well as the political issues at the same time. Therefore, focusing on the economic scene would lead to more jobs, lower interest rates and general economic development of the country.

Luxembourg, which is much smaller in size than Sri Lanka and with a much lower population, has an average income of $50,000 - fifty times larger than Sri Lanka's.

Mersch stressed that neutrality in the political arena is important as "neutrality is something foreign investors value very highly."

Most small countries look at their size as a draw back but it is possible to reverse that mind set. "What is important is to be outward looking, to be open and try to make yourself bigger that you are … fostering regional co-operation using the strength of your neighbours."

Mersch emphasized three important conditions, the objective advantages of a country, which is to do with the country's culture and history, direct policy making which he classified as the tax, accounting and legal environment, and the way the public sector sees and projects itself.

Speaking further on the role of the public sector he said that the attitude of the public sector is important in luring foreign investments into the country. The public sector should have a pro-business attitude and be perceived as flexible and not bureaucratic.

Mersch said, "The overriding importance for small countries is to have absolute political stability. There must be national consensus."

Sri Lanka has to build on its experience of offering peace to the outside world, he added.

Infrastructure that is both inward and outward looking, access for investors to decision makers, and free movement of capital were all stressed as being some of the important factors in the economic development of small countries.

Central Bank can't warn public of shady financial outfits

The Central Bank is unable to warn the public when financial institutions are in danger, as this would lead to a collapse of the entire financial system, its deputy governor W.A. Wijewardena said last week.

The Central Bank performs on-site and off-site supervision of commercial banks and if there are any irregularities they bring such mattes to the attention of the management, he told a seminar organised by the Sri Lanka Association of Securities and Investment Analysts to educate the public on How to make prudent investments.

Wijewardena also spoke of the myth that the Central Bank could rescue financial institutions by means of financial assistance.

He said, “The Central Bank has the right only to print money. It could only do so to the extent the particular financial institution has government securities.”

He also said printing money would increase inflation, which would erode the purchasing power of the people. Speaking on investment options available, Vajira Kulatilake, Chief Executive Officer, Citi National Investment Bank, said, “When investing, having an objective is important. And most importantly diversification; spreading the risk of investment by investing among different assets and institution is a must. Also take inflation, return, risk, time horizon, taxation, and liquidity in to account as they play an important role in making prudent investments.”

Ravi Abeysuriya, of Fitch Ratings Lanka, speaking on the risk of investing, outlined the concept of risk and types of risks.

He said, “Information is the lifeblood of financial markets. In reality the information flow is uneven. In such situations distinguishing between good and poor quality investment is difficult. As a result investors cannot monitor the management's use of funds. The best protection available for investors is financial disclosure, transparency and most importantly good corporate governance.”

He also spoke of the credit rating system , saying, “The public should try to invest with financial institutions with credit ratings. Institutions credit rating should not be misunderstood when purchasing debt instruments of the same institution as debt instruments are rated individually.”

Kithsiri Gunawardena, Senior Manager, Legal, Securities and Exchange Commission (SEC), said the recent amendments to the SEC Act give it enhanced powers to investigate the books of firms, call for information and summon witnesses. The amendments give more protection to investors .

The most shocking description of the financial institutions came from Dr. Wickrema Weerasooria, Legal Consultant, Central Bank , who stressed the importance of casting a suspicious eye on financial institutions, which offer very high interest rates that are unrealistic.

He said the media, which carries advertisements of such institutions, can be sued under the new Fair Trading Authority Act.

Participating in the panel discussion, Sujeewa Mudalige, Partner PriceWaterhouseCoopers said, “When investing with plantation companies, be cautious for the reason that the plantation companies recognise revenue and expenses in a different manner.” He also urged the public to be more informed and to demand good governance from the business community. Mudalige said that the independent media has a bigger role to play in ensuring that the corporate sector adheres to good corporate governance and that the public sector is held accountable as well. (DM)

War jitters punish stocks

Worries about Iraq, domestic political uncertainty and the shaky U.S. economy dragged down stock prices on the Colombo bourse last week with the All Share Price Index plunging below 800 but some investors hope the market would rebound in the coming weeks on good corporate results.

Retail investors and margin trading clients were selling off their stocks and remain pessimistic about the market, with a US attack on Iraq looking inevitable and looming fears that the opposition is pushing for another general election.

Another war in the Gulf would send oil prices shooting up, fuelling inflation, brokers said. But institutional and foreign investors remain hopeful that despite these uncertainties the market would rebound this week on reports of healthy corporate earnings.

There was no big foreign selling last week but foreign investors were picking up small gains as the market traded. There were small amounts of foreign buying of secure stocks such JKH and NDB.

There was also renewed interest in certain plantation stocks.

"With the massive wage hike and a tumbling Middle East market, tea shares are not the favourite," a broker said. "With rubber prices having recovered rubber plantation stocks would be a favourable buy."

The share price of SLT, the highest capitalised stock on the market, dipped below the offer price last week and finished trading around the Rs. 13 mark. "There was some foreign buying of SLT shares, as it was a bargain," another broker said.

With the Japanese aid meeting to be held on June 16, Sri Lanka is expected to get a cash injection of $500 million, which would boost the economy.

The growth rate is seen improving to around five percent, with foreign aid and the peace process helping to revive economic activity in the north and east, especially in the agricultural sector.

The All Share Price Index, which opened on Monday at 813.2 declined subsequently and, despite a slight rebound, closed at 793.53.

The sensitive Milanka Price index followed the same trend, opening the week at 1388.7 and ending at 1345.33. Top gainers on the last day of trading were Browns, Kelani Tyres, Malwatte, and James Finlay. The top losers were Vanik, Kandy Walk Inn, Fort Land and Browns Beach.


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