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CB
dismisses Janashakthi bid "We don't
think it is a serious offer," Jayawardena said in an interview
when asked about the Central Bank's position on the Janashakthi
offer. "We asked
them how much they are willing to put in (to revive Pramuka), they
have not answered. I am making that statement with utmost responsibility." Jayawardena
said Janashakthi had only asked for detailed audit information about
Pramuka, including details about its loans and borrowers and the
security that had been pledged. The Central
Bank was unable to provide the information Janashakthi had asked
for owing to banking secrecy laws, he said. Pramuka's financial
deficiencies were so great that about Rs. 3-4,000 million would
be required to revive it, he said. "When
we asked them whether they had the money, they said 'no',"
he said. "In any case anybody who wants to start a new bank
can do so with Rs. 500 million. Why should they pay Rs. 3-4,000
million?" Pramuka was
insolvent with about three-quarters of its loans not being recoverable
and the irregularities the bank management had been engaged in had
been very difficult to detect, Jayawardena said. Asked why the
Central Bank decided to wind up Pramuka but allowed others to bail
out Union Bank and Merc Bank, Jayawardena said: "There is no
discrimination. When it comes to banks, there are good banks and
there are bad banks. There are good banks which have a good relationship
with the Central Bank and don't engage in fraud and if they get
into difficulty we help them. We ask them to bring in more capital.
If they can't we help them form a partnership with another bank." But banks which
did not listen to Central Bank advice and flouted Central Bank instructions
"openly and brazenly" could not be revived, he said. "Its (Pramuka's)
track record was so bad that when we talked to some of the other
banks to see whether they would be interested in coming to its rescue
they asked us whether we were joking." Jayawardene's views will disappoint many desperate depositors who have been leading a campaign to revive the bank and recover their deposits. Some cases have been filed in courts challenging the Central Bank decision to liquidate the bank which has created an unavoidable situation for depositors. As a result of the case, the Central Bank has been forced to continue paying salaries of Pramuka employees -- all of which come from the deposits. Janashakthi's offer to take over the bank came at the request of the depositors. Vanik
hopes for recovery in seven years While the cash-strapped
merchant bank is struggling, Vanik's other subsidiaries have been
showing good returns and efforts are underway to clear the huge
Rs. 7 billion debt. The group is also investing in a teak plantation
at Anamaduwa to raise revenue but it could trigger fresh concerns
from anxious depositors if the project fails. Justin Meegoda,
president and CEO of Vanik Inc, said under VINKETH launched about
six months ago, 100 acres have been purchased to plant teak. In
a new concept, the company has so far planted trees on 50 acres
and hopes to sell 40-perch blocks at Rs. 139,000 per block and manage
the property on behalf of the new owner. The company says the management
fee is built into the property cost so there is no added cost with
expectations that the 130 trees to be planted in each block would
end up with 40 trees ready for felling in 18 years time. VINTECH
will launch its advertising campaign next month, Meegoda said. The company
CEO, against whom various accusations have been levelled by depositors
and disgruntled groups, believes his company can get out of the
woods under the restructuring plan. "We are individually negotiating
with banks to reschedule our debts over a five to seven-year period
while in the case of depositors, we hope to complete repayments
in three years," he said. The total liabilities ran up to Rs. 7 billion which Meegoda attributes to "some mistakes we made in investments" but the figure has been reduced to Rs. 3 billion with some cost cutting exercises enforced in the company. Now the company is trying to convince depositors to accept a delayed-payment plan. Banks
must cut lending rates "And I
think they should be doing so. They have been reducing their interest
rates but not enough," he told The Sunday Times FT. "They
first bring down rates to their prime customers and then gradually
extend to other customers." The spread
between the cost at which commercial banks raise their funds and
the rates at which they lend are "very, very large", being
as high as 5-6 percentage points compared with just 1-2 percentage
points elsewhere in Asia, Jayawardena said. "This
is the reason why there has been heavy criticism of banks. That
their lending rates are very high compared to their borrowing costs." The decline
in lending rates of commercial banks do not seem to be proportionate
with the decline in their deposit rates, Jayawardena said. "Of course,
they can argue that they have a high proportion of non-performing
loans for which they have to make provisions - set aside some of
their profits to meet that liability." In Sri Lanka
NPLs are in the region of 15-16 percent compared with 5-10 percent
that is considered satisfactory elsewhere. Jayawardena
said it was not unexpected that NPLs had increased considering the
recession in 2001 when even some exporters defaulted on loans. "So
it is also possible banks are trying to make provision for bad loans
for a certain period when our economy did badly. That may be one
argument they might use but I yet think there is some scope for
a reduction in lending rates." Some banks
had already reduced their lending rates while others were yet to
do so. "If a
bank does not reduce its lending rate one would expect it to lose
customers. But they seem to be going on without much impact on their
lending operations. Some borrowers seem willing to pay 2-3 percentage
points interest more from their regular bank than go to another
bank," he said. The Central Bank went to the extent of publishing each bank's deposit and lending rates and plans to do so again to show the difference between the borrowing and lending rates so that customers can see for themselves how much each bank will charge for different types of loans. Govt
defers imposing VAT on retail trade There were
concerns that the imposition of VAT on retail trade on top of the
existing turnover tax charged by provincial councils would double
the tax burden, they said adding that no new dates have been set
for implementing this budget proposal. "Therefore there should
be some kind of revenue sharing that needs to be introduced before
VAT could be imposed on retail trade. Furthermore, the turnover
tax cannot be abolished without amending the constitution,"
an official said. Concerns over
the rising cost of living and the need for further studies before
bringing the retail trade into the VAT system also contributed to
the postponement. The gross collection
of VAT alone in 2002 for the four-month period September to December
was Rs. 33.7 billion consisting of Rs. 14.5 billion from domestic
collections and Rs. 19.2 billion from imports. The government raised
Rs. 30.9 billion from the Goods and Services Tax (GST) and the National
Security Levy (NSL) in the same period in 2001. When VAT was
introduced it was to be revenue neutral and the government was confident
that the original forecast tax revenue could be achieved and any
revenue shortfall would be manageable. GST, NSL and
VAT together raised Rs. 95.8 billion in 2002, slightly less than
the forecast Rs. 98 billion. Finance Ministry
officials said they believed the collection should have been much
higher due to inflation, economic growth and the higher band of
VAT at 20 percent on certain goods. The shortfall
may have been owing to some items which were liable to NSL, such
as wheat, rice and books, being exempted from VAT, others which
came under both GST and NSL now coming only under the 10 percent
VAT band and large amounts of refunds, particularly to textile manufacturers
and the construction industry. For instance,
the VAT on cement is 20 percent but on construction is 10 percent.
Refunds have to be made as the inputs are liable at 20 percent and
outputs are liable at 10 percent. Furthermore
the government had to also accept a 2.5 percent tax reduction because
several items, which were liable to the 12.5 percent GST, had now
come under the 10 percent VAT band. These include cinematic films,
leasing facilities, hotels, and consumption of over 30 kilo watt
hours of electricity a month. Customs has
also stopped imposing a 25 percent price mark-up on imports as was
done under the GST and NSL systems. That procedure was done away
with as it was an artificial price that they charged tax on. Officials said
that even during the GST and NSL tax regime collections were far
below the estimates. The VAT lower
band of 10 percent applies to essential goods and services while
all other goods and services will be charged at the standard rate
of 20 percent. Sources said
it was too early to say whether VAT had led to a shortfall in revenue
collection since no evaluation had yet been done and no in-depth
study made in relation to collections and the implications of the
new systems. The government
plans to collect Rs. 119 billion in 2003 from VAT alone and expects
that revenue will increase owing to fresh hope the country's economy
will grow strongly this year. Revenue in the first quarter (January to March) came to Rs. 27.6 billion (Rs. 14 billion from imports and Rs. 13.6 billion from local collections). Sathosa
privatisation runs into several snags Although two
- Cargills and a John Keells-led consortium - of the five bids were
believed to have been accepted for the final selection while the
other three were rejected by the cabinet-appointed consultants and
the cabinet-appointed Tender Board, questions are being raised over
unnecessary delays in awarding the tender. Informed sources
said there is an attempt to seek a fresh revaluation of the assets
on the grounds that the original value of Rs. 400 million (for the
40 percent stake) recommended and accepted by the tender committees
is not good enough. Industry analysts
say if this happens it would be unfair to all bidders given that
the bids were called after the assets were valued. When the tender
was first announced last October, offers were made by the John Keells-Carsons-Ceylon
Biscuits consortium, Cargills group, Abans, Shoprite Ltd and Foodlands
Lanka. The consultants, which had made the original valuation of the assets, then examined the bids and recommended two of the offers. |
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