Commercial Bank Group posts big tax profits

The Commercial Bank Group comprising Sri Lanka's benchmark private sector bank, its subsidiaries and associate companies, has reported spectacular growth in pre- and post-tax profit in the first quarter of 2006.

In a statement the Group reported a post-tax profit of Rs 943.1 million for the first quarter of 2006 as against Rs 348.5 million reported in the same quarter last year, a growth of Rs 594.6 million or 170.6 per cent.

Pre-tax profits of the Group for the period rose to Rs 1.404 billion from Rs 581.3 million, a growth of Rs 822.7 million or 141.5 per cent.

The Group's performance was underpinned by mark to market gains totalling Rs 667.2 million which arose from transferring part of the investments made in DFCC Bank and the full investment in Commercial Leasing Company Limited to the trading portfolio of the Bank. Discounting the mark to market gains and the special VAT thereon, the post-tax profit of the Group for the quarter was Rs 387.1 million, an increase of Rs 38.6 million or 11 per cent compared to the first quarter of 2005. On the same basis, the pre-tax profit of the Group for the quarter was Rs 848.1 million, an increase of Rs 266.8 million or 46 per cent, compared to the first quarter of 2005.

Additionally, exchange profit recorded a substantial growth of Rs 238.2 million to Rs 193.4 million as at March 31, 2006 as against an exchange loss of Rs 44.8 million reported in the first quarter of 2005, the Bank said.

At Bank level, the Commercial Bank reported healthy growth in profitability with pre-tax profits of Rs 1.570 billion for the first quarter of 2006, an increase of Rs 1.022 billion or 186.4 per cent from Rs 548.5 million reported for the first quarter of last year. Discounting the mark to market gains and the special VAT thereon, the pre-tax profit of the Bank for the quarter was Rs 1.014 million, an increase of Rs 466.3 million or 85 per cent compared to the first quarter of 2005.

Post-tax profit of the Bank amounted to Rs 1.114 billion for the period under review as against Rs 326 million earned in the corresponding period in 2005, reflecting a growth of Rs 788.8 million or 241.9 per cent. Discounting the mark to market gains and the special VAT thereon, the post-tax profit of the Bank for the quarter was Rs 558.8 million, an increase of Rs 232.8 million or 71 per cent, compared to the first quarter of 2005.

Commenting on Group profitability, Commercial Bank's Senior Deputy General Manager (Finance and Planning) Ranjith Samaranayake said that the healthy pre-tax and post-tax profits of the Group was achieved despite a substantial increase in corporate tax liability of the Bank by Rs 233.5 million or 104.9 per cent. This was mainly due to the increase in the corporate tax rate from 30 per cent in 2005 to 35 per cent in 2006 and provision for deferred tax on assets leased to customers in terms of the revised Sri Lanka Accounting Standard No. 14.

"In addition to the business growth, judicial fund management also helped maintain interest margins at reasonable levels despite the rise in time deposits in the deposits mix of the Bank. This arose due to the market conditions that prevailed at the time," Mr Samaranayake added.


Economic costs of natural disasters

By Dulip Jayawardena

The Sri Lanka Disaster Management Act of 2005 came into force on May 13 and is the legal instrument that provides for the establishment of the National Council for Disaster Management: the Disaster Management Centre; the appointment of Technical Advisory Committees; the preparation of Disaster Management Plans the Declaration of State of Disaster; the Award of Compensation, etc.

The interpretation of a "disaster" as contained in Article 25 is "the actual or imminent occurrence of a natural or man-made event, which endangers or threatens to endanger the safety or health of any person or group of persons in Sri Lanka, or which destroys or damages or threatens to destroy or damage any property".

Looking at future insurance against nature’s worst.

These include under natural disasters (a) landslides which could also be man-made or a combination of both, (b) cyclones, (c) floods, (d) droughts, (e) tsunami as experienced in December 2004 nearly five months before the Act came into force, (f) earthquakes, (g) coastal erosion (h) tornados, lightning strikes and severe thunder storms.

Under man-made disasters are included (a) industrial hazard, (b) air hazard (could be also a natural disaster), (c) a maritime hazard e.g. oil spills, discharge of toxic waste, etc, (d) fire, (k) epidemic, (f) explosion, (g) air raids, (h) civil or internal strife, (i) chemical accidents, (j) radiological emergency, like leakages from nuclear reactors (nuclear disasters), and, (k) forest fires (could be natural as well as man-made) urban fires.

The Act provides for the establishment of the National Council for Disaster Management. It is a body corporate and shall have perpetual succession with a common seal and may sue and be sued in such name.

The President is the Chairman of the Council with the Prime Minister as the Vice Chairman.

The main functions of the Council are to formulate a National Policy and Programme on the management of disasters to provide for (a) the protection of the community and environment from disasters and the maintenance and development of disaster affected areas, (b) the effective use of resources for preparedness, prevention, relief reconstruction and rehabilitation, (c) the enhancement of public awareness (d) capacity building, and (e) pre-disaster planning.

The Council is also charged with the function of the preparation, formulation of the National Disaster Management Plan (NDMP) and the National Emergency Operation Plan (NEOP) and monitoring the implementation of such plans based on the national policy stated above.
Let us now examine the impracticality of implementing the Disaster Management Act:

The inclusion of both natural and man-made disasters under one Act creates difficulties of proper implementation and coordination to achieve its objectives.

There is provision for the Council to have 37 members and the quorum is 12. The Council shall meet often as may be necessary but at least once in every three months. This requirement will be impractical in case of a sudden natural disaster such as tsunami, storm surge or a cyclone.

A Director-General who is at present not an expert in disaster management or mitigation with any experience in these disciplines heads the Disaster Management Centre.

It is not certain whether other directors who are experts in the various fields of natural and man made disasters have been appointed.

Since the Centre has been assigned tasks, which are divergent in nature, it is highly impractical for it to handle all the functions in an effective manner.

The National Science Foundation (NSF) has initiated long-term research programmes related to scientific study of the December 2004 tsunami including a case study of the Peraliya disaster spending millions of rupees. The Peraliya disaster was mainly due to coral mining activities that destroyed the reef and made the coastline vulnerable to tsunami waves. The only practical and meaningful research activity already completed was the preparation of inundation maps by the GSMB that could be useful in the reconstruction of houses and other civil structures and the design of new railway line, as well as the proposed highway along the coastline. It is best to examine whether the Disaster Management Centre is aware of such research which is one of its basic functions.

In order to overcome the above difficulties I would propose that the Act be amended to provide for two Councils to handle natural and man-made disasters. The Ministers whose relevant functions could be separated from natural and man-made disasters could constitute the two Councils. There could be two Centres headed by two Director-Generals and appropriate Directors and Technical Advisory Committees according to the various subject areas.

The Council should take immediate action to set up a database by collecting data on disasters and provide facilities for exchange of such data among researchers.

At present much emphasis is given to establish early warning systems specially for warning the people on tsunami using community based, as well as advanced technology. It is reliably learnt that the politicians and government officials are regularly traveling abroad on matters related to establishing early warning systems for tsunamis. It must be realised that storm surges, floods, landslides and other natural disasters could be as destructive and occur more regularly as compared to tsunami which would hit us in about a couple of centuries or more and this factor should not be ignored.

Government's role in natural disasters

Let us now examine the government's role in natural disasters in other countries. A good example to follow is Australia. Protecting the community and property from natural disasters is primarily the responsibility of the State and the Territory Governments but the Australian Federal Government assists the States and Territories by strengthening their response capabilities and providing extra resources as required.
During a natural disaster the community response is coordinated by local emergency services. The Federal Government's role in following a natural disaster is listed below.

1. Department of Transport and Regional Services (DOTARS) – This organisation administers the Natural Disaster Relief Arrangements to alleviate the financial burden on state expenditure on relief and recovery measures. The Department provides funding through Regional Flood Mitigation, the Bushfire Mitigation and Natural Disaster Mitigation Programs to reduce the impact of floods storms, bush fires and other natural disasters

2. Australian Maritime Safety Authority (AMSA) – The AMSA has the primary role in maritime safety, protection of the marine environment and maritime and aviation search and rescue operations. AMSA also manages the National Plan on ship sourced marine pollution.

(3) Bureau of Meteo-
rology – Plays a vital role as the primary provider of weather, hydrological, climate and oceanographic forecasts and information. The Bureau is responsible for the issue of warnings on gales, storms, and other weather conditions likely to endanger life or property by floods, bush fires, tsunami and extreme climatic events.

4. Centrelink – Plays a key role in government response to emergencies by supporting the recovery of individuals, families, and communities through income support and other assistance.

5. Department of Agri-
culture Fisheries and Forestry - Farm help and Rural Financial Counseling Service Programme developed under Agriculture Advancing Australia (AAA) for effected primary producers.

6. Emergency Mana-
gement Australia (EMA) – It is the apex body for emergency management of Australia under the Attorney-General that coordinates natural disasters that cannot be coped with by states or territories.

7. Department of Defence – Assistance include transport and logistical support evacuation rescue medical services provision of emergency accommodation and supplies.

8. Family and Community Services – Supports the recovery of individuals families and communities through income support payments Community Relationship and Financial Counseling Programmes.

9. Geoscience Australia – Its role includes maintaining a network of seismographs throughout Australia as part of an earthquake alert system. Risk assessments are developed using extensive network of databases including topographic maps, satellite imagery critical infrastructure and post disaster information.

Economic costs of natural disasters.

A major drawback in the Sri Lanka Disaster Management Act is the absence of any provision for the establishment of a mechanism or framework to ascertain the economic costs of natural disasters although there is provision for payment of compensation. To this end it is relevant to mention a report prepared by the Australian Bureau of Transport Economics (BTE) on this subject. The data for such determination is from the database maintained by the Emergency Management Australia (EMA). This database since 1967 has also reliable insurance data that was very helpful. The Report contains analyses of events where the total damage had exceeded A$10 million.

The government here should study the above report and adopt an appropriate framework for calculating the economic costs of natural disasters. A good example is to work on the 2004 tsunami after determining the base level in rupees and the assessment of damages will be above this base level .The classification of losses could be under tangible and intangible, which could be further sub-divided into direct and indirect losses. The cost of lost business is often included in the estimated cost of a disaster. However, in a national disaster business disruption costs should not be included.

In order to give some guidelines the Australian findings are:
1. Natural disasters (with cost per event over A$10 million) cost the community A$38.5 billion over the period 1967 to 1999.
2. The annual costs of the disasters between 1967 to 1999 was A$1.14 billion approximately A$85 per person
3. There had been 265 natural disasters costing more than A$10 million each during the period 1967 to 1999.
(Source: Bureau of Transport Economics Report 103 Government of Australia 2001)

The Ministry of Disaster Management in Sri Lanka should obtain the assistance of the Australian Government under Australian Aid and initiate action for identifying an appropriate framework to determine the economic costs of natural disasters by identifying threshold values. Such disasters could be categorised as floods, landslides, cyclones, storm surges and tsunami, which will be very rare. Disasters, which are man-made as given in the Act could also be identified much easier as compared to natural disasters to ascertain the economic costs.

The role of insurance companies and banks in arriving at economic costs of disasters should be reviewed. The government should look at the practicality of insuring property and human lives from disasters and the modalities involved.

To this end vulnerable areas, especially for natural disasters, should be identified and categorised as low medium and high-risk areas for the purpose of providing insurance cover.


Philanthropy alone is not good CSR

By Ravi Fernando

Globally, there is greater awareness and sensitivity on the need for sustainable development than at any time in history.

While organisation after organisation strives to increase shareholder value the need to do so, in a manner that is both environmentally and socially acceptable, has given birth to the concept of the “triple bottom line”. The triple bottom line is creating economic value whilst sustaining the environment and society in which an organisation operates.

Sustainable development is defined as development that meets the needs of the present without compromising the ability of future generations to meet their own needs. (Report of the World Commission for Environment & Development -the Bruntland report).

In Sri Lanka we have seen many organisations get onto the CSR bandwagon most often unaware that philanthropy alone is not CSR and embarking on many initiatives that strive to do good.

Most often the cost of “publicity” outweighs the cost of the “impact” achieved in making a difference in the lives they set out to change for the better.

Corporate social responsibility has been defined in the World Business Council for sustainable development publication “Corporate social responsibility: making good business sense” January 2000 as: “The continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families, as well as of the local community and society at large.”

What is CSR?

= CSR is the social and environmental impact of all company decisions and assets.
= The conduct of business partners.
= Suppliers, production partners (outsourced manufacturing partners), vendors, end of life cycle partners.
= Marketing and sales practices.
= Past wrongs and future impacts.
= How decisions are made and communicated.
CSR isn’t just corporate citizenship, philanthropy, volunteerism or cause marketing.

Strategic CSR

Many organisations have practiced some form of philanthropy. In the guise of mainly CSR, many disjointed initiatives of philanthropy are done to project an image of good corporate citizenship. But invariably they are not “sustained” in an organisation when strategic business goals, objectives, strategy and priorities will always override the “nice to do” with “must do”.

But if organisations embark on a strategic CSR initiative this will invariably be sustained as it also contributes to achieving the organisations goals.

Strategic CSR in my opinion is when an organisation reviews its strategic business/organisational goals and identifies an area of impact amongst its sphere of influence/existing competences and focuses on a CSR initiative in the communities it operates and the publics it impacts.

Here are some examples and ideas in healthcare, IT and apparel manufacture, tourism and finance sectors:

1) An organisation in pharmaceuticals/health can focus its strategic CSR effort on the identified healthcare needs its current or future portfolio is focused on meeting, in the communities it operates and the public it engages with. If antibiotics are the focus category then “educating” target groups how to use them properly is a key task when “drug resistance” is a global issue.

In fact Smithkline Beecham International did so in Vietnam joining hands with the Ministry of Health there in 1996/99 to “educate the medical profession and pharmacists of the emerging threat of antibiotic resistance and its effects”… as the ratio of people developing antibiotic resistance was on the increase”.

This programme whilst impacting the organisations target groups through this strategic CSR initiative, developed rapport with the Ministry of Health and continues its programmes having a strategic impact whilst consolidating its position as a leading antibiotic manufacturer.

2) Organisations in IT have “strategic CSR impacts” if it educates future generations on the “IT/Internet” use by setting up centres of excellence.

3) Organistions in apparel manufacture globally have a high percentage of women employed in the industry, close to 80 percent. In the developed world the current perception is that most of these women, wherever they work, work in “sweatshop” conditions and are exploited. Countries like China and India have been tainted with this image.

MAS Holdings a leading apparel manufacturer in Sri Lanka has had “exceptional labour practices to support the women” who have worked for them for over 17 years. In 2003 MAS launched a Strategic CSR initiative to continue to empower the 20,000 women who work in there plants titled “Women GO beyond.”

Whilst this programme impacts on the major portion of its employees (92 percent) in a socially responsible way, it motivates, respects and empowers them with new skills and competences. This in turn differentiates MAS from those apparel manufacturers who are perceived to be exploiting their female staff. The programme won the prestigious “2005 American Apparel & Footwear Associations –Excellence in Social responsibility award”

4) Organisations in financial sectors can have “strategic CSR impact” by educating all strata of society on “how to better manage their finances”.

5) Organisations in the hotel and travel sectors can have strategic CSR impact by educating those living in the designated and globally identified heritage sites of the need to care for the environment and even take ownership for its care and protection by encouraging clusters of people living in the vicinity by encouraging them to organise themselves to proactively look after the immediate environment they live in.

Branding for differentiation – building product, service or corporate brands is a strategy pursued by many organisations to build competitive advantage to command superior margins. Therefore in a world where sustainable development and CSR occupy centre stage where “differentiation for competitive advantage” is a key pre-requisite for business success, Strategic CSR is the way forward.

In the New Brand World, successful brands set themselves apart not just by how they perform but how they create, deliver and communicate them and interact with the world around them.

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