Sri Lanka Newspapers - 30/12/2011

Overnight rates mixed, dollar sales continue

Overnight interbank borrowing rates closed in both directions on Thursday (29) with the Central Bank pumping in Rs. 7 billion in to the banking system to ease liquidity tightening caused by the defence of the exchange rate.

Dealers pointed out that pressure on interest rates continued unabated as the Central Bank pumped in Rs. 7 billion through the reverse repurchase window at 8.031 percent, higher than the 8.016 percent the previous day, an indication that the banking sector was demanding for higher rates.

Benchmark Treasury bill rates had already increased on Wednesday due to tight liquidity.

On Thursday, the overnight average weighted call money market rates for interbank borrowings without collateral eased to 8.89 percent from the previous day’s 8.98 percent. But money market rates for borrowings against government securities inched up to 8.14 percent from the previous day’s 8.02 percent.

The overnight Sri Lanka Inter Bank Offered Rate eased to 9 percent from 9.02 percent the previous day.

Import demand continues to be severe and dealers said the Central Bank has sold US$ 665 million since the 3 percent devaluation on November 22 to keep the exchange rate stable. For the three month period July to September the Central Bank had sold US$ 1.1 billion.

The rupee closed unchanged at Rs. 113.89/90 to a dollar.

http://island.lk/index.php?page_cat=article-details&page=article-details&code_title=42129

Commercial Bank of Ceylon PLC announced that its Chairman Mahendra Amarasuriya would resign from the office of Chairman and as a member of the Board of Directors today, December 30.

The bank said in a stock exchange filing yesterday (29) the resignation was for personal reasons, "notwithstanding the Appeal Court Interim order making it legally possible for him to continue as a Director of Commercial Bank beyond December 31, 2011.

The Central Bank has a ruling that required those who had served nine consecutive years on commercial bank boards as well as those over 70 years of age to step down as part of good corporate governance.

However, good governance activist K. C. Vignarajah, who obtained an interim injunction from the Court of Appeal deferring the Central Bank retirement ruling, says Amarasuriya’s resignation on personal grounds would have to be accepted, despite it being a sad day for the bank and the country’s banking sector.

"Age and experience should not be a disqualification in the highly competitive banking sector. Amarasuriya was fit, honest and upright and his integrity was unimpeachable. He possessed a wealth of knowledge and experience and he was highly respected," Vignarajah said speaking to The Island Financial Review.

Vignarajah said he had challenged the Central Bank ruling because he was trying to defend good principles.

"We would rather see someone with integrity sit on the board rather than a political appointee. And just because someone is above the retirement age does not render such a person redundant. Being efficient in a policy making capacity, such as a non-executive chairman or director of a commercial bank board, does not mean a person has to work 24x7. At the policy level, the skills required are different from hands-on management and this is why banks need people with knowledge and experience. We must not ignore the fact that there is a dearth of good, upright people with integrity for these top level positions," he said.

Vignarajah said his legal action countering the Central Bank’s ruling was not solely intended to allow Amarasuriya to continue as the Chairman of Commercial Bank, but also to allow other such persons a chance to continue serving in their respective director boards for the good of the banking industry.

Amarasuriya served as Commercial Bank’s Chairman for 16 years.

Meanwhile, highly placed industry sources told The Island Financial Review that Amitha Gooneratne, the bank’s Managing Director was expected to resign before April 2012. It is believed that the bank’s Chief Operating Officer (COO) Ravi Dias would be appointed as the new Managing Director.

http://island.lk/index.php?page_cat=article-details&page=article-details&code_title=42131

BANGKOK (AP) — Asian stock markets were mostly lower Thursday amid new signs of pressure on Europe’s banking system and a downturn on Wall Street.

Benchmark oil lingered above $99 per barrel while the dollar rose against the euro but fell against the yen.

Japan’s Nikkei 225 index fell 0.7 percent to 8,367.73. Hong Kong’s Hang Seng Index was 0.9 percent lower at 18,349.90. Australia’s S&P ASX 200 fell 0.6 percent to 4,064.20. Benchmarks in India and Indonesia were also lower.

But South Korea’s Kospi reversed earlier losses and gained 0.1 percent to 1,827.17. Benchmarks in Singapore and Taiwan also rose after a lower opening. Shares in mainland China and Malaysia were also higher. Overall, stock markets were quieter than normal as many traders go on vacation the week between Christmas and New Year’s.

Investor sentiment waned hours after the European Central Bank said banks had parked $590.72 billion with it overnight, surpassing the record set only Monday. That means European banks were less willing to take the risk of making short-term loans to each other, opting instead to earn low interest rates from the ECB — with money lent by the central bank itself.

Francis Lun, managing director of Lyncean Holdings in Hong Kong, said the action on the part of the banks "defeated the purpose" of the ECB lending operation, which was to spur business activity.

"Investors are disappointed at the development," Lun said. "Europe still has not found an answer on how to solve its sovereign debt crisis. There’s no solution, and they are trying cosmetic measures, which really do not address the problem."

The development also shook confidence in the euro, which on Wednesday dropped to $1.2910 — its lowest level against the dollar in nearly a year — before recovering slightly.

"As we have seen time and time again throughout 2011, when EUR/USD falls, so does equities, and so does gold, with traders buying into fixed income assets," Chris Weston of IG Markets in Melbourne wrote in a research note.

Even successful bond auctions in Italy failed to lift the euro against the dollar. Demand for Italian bonds was strong Wednesday, and the country was able to pay lower interest rates.

Meanwhile, the yen’s rise to a 10-year high against the euro put stress on Japan’s exporters. Kyodo News agency said the euro briefly fell to 100.35 yen in Tokyo, its lowest level against the Japanese currency since June 2001.

Honda Motor Corp. fell 1.4 percent. Sharp Corp. shed 3.6 percent. Yamaha Motor Corp. and Suzuki Motor Corp. both lost 1 percent.

Commodity shares in Australia came under pressure amid worries about the state of the global economy. Gold miner Newcrest Mining Ltd. lost 3.1 percent. Woodside Petroleum fell 1.1 percent. OZ Minerals fell 3.3 percent after the company said copper concentrate may have spilled from a derailed train.

In currency trading Thursday, the euro fell to $1.2929 from $1.2941 late Wednesday in New York. The dollar fell to 77.72 yen from 77.91 yen.

On Wall Street, the Dow Jones industrial average fell 1.1 percent to 12,151.41. The S&P 500 fell 1.3 percent to 1,249.64. The Nasdaq composite declined 1.3 percent to 2,589.98.

Benchmark crude for February delivery rose 6 cents to $99.42 a barrel at midday Singapore time in electronic trading on the New York Mercantile Exchange. The contract fell $1.98 to settle at $99.36 in New York on Wednesday.

http://island.lk/index.php?page_cat=article-details&page=article-details&code_title=42139

Reuters: Sri Lanka’s main share index ended a four-session winning streak on Thursday as banking shares came under pressure.

Foreign investors sold Commercial Bank of Ceylon for a third day after the resignation of its Chairman was announced.

Commercial Bank of Ceylon edged down 0.3 per cent, resulting in foreign outflow of Rs. 173.4 million ($ 1.52 million).

The main share index slid 0.07 per cent or 4.01 points, to 6,089.38, from a four-week high.
The Central Bank kept the rupee currency steady by selling around $ 30 million.

Offshore outflow in the three sessions through Thursday was Rs. 1.17 billion, with more than 90 per cent of that generated by Commercial Bank, traders said.

Commercial Bank, in a statement to the bourse, said Chairman M.J.C. Amarasuriya would resign from the post on Friday.

Analysts and brokers said the foreign outflow appeared to be due to a Europe-based fund selling the shares, though they could not explain its motivation or if the selling was related to the resignation of Amarasuriya.
Net offshore selling year-to-date has been 19.04 billion rupees. Foreigners sold a record 26.4 billion rupees in stocks in 2010.

The day’s turnover was 678.1 million rupees, far below last year’s average of 2.4 billion and this year’s 2.3 billion.

The market has been looking for an easing of credit limits imposed by the Securities and Exchange Commission (SEC), which along with the resignation of the regulator’s Head and Deputy, and a three per cent currency devaluation, have dampened the market.

Any new direction from the new SEC Head on credit limits is expected in January, brokers said.
Last month, brokers, who complained tougher regulation was hurting stock market prices, met President Mahinda Rajapaksa to urge him to intervene in his capacity as Finance Minister to revive the slumping bourse.

The Colombo Stock Exchange has fallen to Asia’s 10th-best performer with a year-to-date loss of 8.24 per cent, after being top in the region until June. It delivered Asia’s best returns in 2009 and 2010. The rupee closed flat at 113.89/90 to the dollar for a 26th straight session with the Central Bank selling around $30 million to defend it, dealers said.

On Wednesday, Treasury Secretary P.B. Jayasundera said Sri Lanka needs flexible exchange rates and tighter monetary policy to curb cheap imports that are putting pressure on the country’s balance of payments.

Yet last week, Central Bank Governor Ajith Nivard Cabraal told Reuters that it can maintain the rupee rate by selling dollars from foreign reserves as it expects large inflows in coming months.

The bank has spent around $ 665 million to keep the exchange rate steady since a three per cent devaluation on 21 November. It spent a net $ 1.36 billion in the first nine months of the year to keep depreciation pressure at bay.

http://www.ft.lk/2011/12/30/banks-help-halt-sri-lanka-stocks-winning-run/