Strategic capital market focus for economic recovery
Sri Lanka’s economy is in recovery mode, requiring fiscal consolidation, balance of payments, a flexible exchange rate, and growth. Capital markets are crucial to achieving sustainable economic growth, stated Chairman, Securities and Exchange Commission of Sri Lanka Prof. Hareendra Dissabandara, at a presentation on “unlocking the capital market potential for Sri Lankan banks and redefining the role of banks in Sri Lanka’s capital market ecosystem.”
The event was organised by the Association of Professional Bankers (APB) as a Continuous Development Programme on Tuesday in Colombo. He further said that many are not aware of the difference between the capital market and the stock market, with the understanding that both are the same. “This is why the importance of awareness is crucial at this juncture,” he said.
From left - Panellists: Prof. Hareendra Dissabandara, Ms Ruvini Fernando (Deloitte), Damith Pallewatta (HNB) and Dilshan Wirasekara (First Capital Holdings).
Reiterating that the Sri Lankan economy is still in the recovery mode, he said that the country needs fiscal consolidation, balance of payment, a flexible exchange rate, and growth. “It is a difficult road, and there is always a chance of returning to where we were. The IMF package is not a panacea for all ills. In the road to recovery, we need to have a plan, which is why capital markets are very important.” Noting that less than 1 per cent of registered companies are listed on the stock exchange, standing at 286 companies, out of 230,000 companies in the country, he said that attracting at least 500 new companies is a huge potential for the market.
APB President Anton Arumugam.
Stressing the importance of estimating the projected investment to achieve more than a 5 per cent growth rate, Prof. Dissabandara noted that the capital market should at least contribute 30 to 40 per cent of this amount.
The Colombo Stock Exchange (CSE) has a market capitalisation of Rs. 5.7 trillion, with a 49.1 per cent growth in the all-share price index in 2024. It raised Rs. 80.5 billion in equity capital last year and Rs. 94.8 billion in debt capital. The price-to-earnings ratio was at 8.89 times at the end of last year. The banking sector has US$ 80 billion, which is 67 per cent of the financial sector asset composition as of last year. The superannuation funds have 15 per cent, the Central Bank has 12 per cent, the insurance companies have 3.3 per cent, but the capital market is insignificant, Prof. Dissabandara said, noting down some statistics.
Sri Lanka’s financial sector is bigger than its GDP, at Rs. 32.3 trillion. The market capitalisation of the CSE accounted for 23 per cent of the GDP of Sri Lanka, as against 134 per cent in neighbouring India. Prof. Dissabandara detailed that 40 years ago, at the start of the CSE, if someone deposited Rs. 10,000 in a bank, and parallelly a capital market investment of Rs. 10,000, at the end of 2010, in a savings account, he can have only Rs. 2035 as against Rs. 42,841 in the capital market after adjusting for inflation.
The state-funded projects, such as the Lotus Tower, the Mattala International Airport, the Central Expressway, and the Hambantota Port, were completed with loans obtained at 6 to 7 per cent interest. The Lotus Tower investment was $ 103 million, whereas it is less than 10 per cent of the John Keells (JKH) Cinnamon Life project, which is more than $ 1.2 billion. JKH has managed to raise capital; however, the government did not consider utilising the capital market for its projects.
Highlighting the role of the banks in the capital markets, he said, banks can be capital mobilisers rather than being merely lenders and can be a one-stop financial supermarket.
Hitad.lk has you covered with quality used or brand new cars for sale that are budget friendly yet reliable! Now is the time to sell your old ride for something more attractive to today's modern automotive market demands. Browse through our selection of affordable options now on Hitad.lk before deciding on what will work best for you!