Sri Lanka Newspapers Monday 12/03/2012

Govt. borrowings from Central Bank surge

Credit to the private sector from domestic banks slowed down January 2012 with Rs. 49.2 billion being generated in new loans while credit to the government from the Central Bank and the domestic banking sector surged, generating new loans amounting to Rs. 93.3 billion, latest data released by the Central Bank showed.

Domestic bank lending to the private sector grew 37.1 percent in January 2012, up from Rs. 1,364.7 billion a year ago to Rs. 1,870.7 billion. By end December 2011, total credit was Rs. 1,821.5 billion.

Lending to the government by the domestic banking sector grew 42 percent to Rs. 540.3 billion as at end January 2012 from Rs. 380.5 billion a year earlier. Total credit was Rs. 472.8 billion as at end December 2011.

Total outstanding government credit from the Central Bank amounted to Rs. 288.5 billion, up a huge 215.4 percent from Rs. 91.5 billion a year earlier. As at end December 2011, the amount was Rs. 262.7 billion.

From January 2011 to January 2012, the private sector had generated Rs. 523.6 billion in fresh loans from both domestic and foreign banking sources whereas the government had generated loans amounting to Rs. 322.2 billion lower only because borrowings from foreign banking units dropped 26.1 percent.

In February 2012, the Central Bank increased policy interest rates by 50 basis points and slapped a 18 percent cap on credit growth in a bid to contain credit led demand for imports which had fuelled a balance of payments crisis which was unheeded by authorities for nearly seven months.

While the Central Bank has pointed the finger at excessive private sector credit growth it has printed a huge amount of money for the government in 2011.

As at end December 2011, private sector credit growth from the domestic banking system amounted to 36.6 percent, with total outstanding credit amounting Rs. 1,821.5 billion. During the year, new loans generated to the private sector amounted to Rs. 487.7 billion. The new loans generated to the private sector in 2010 amounted to Rs. 290 billion.

In 2011, the government’s borrowing from the Central Bank had grown at a massive pace.

The government’s net borrowings from the Central Bank amounted to Rs. 262.7 billion as at end December 2011, up 241.7 percent from the previous year. In 2010, credit from the Central Bank had actually declined 29.5 percent to Rs. 76.9 billion by the year’s end.

Total net credit to the government was up 32.9 percent in 2011, generating new loans amounting to Rs. 206.4 billion from the Central Bank, domestic banks and foreign banking units. Domestic banks generated new loans amounting to Rs. 54.9 billion for the government during the year.
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Commercial Bank of Ceylon PLC’s former Managing Director Amitha Gooneratne told shareholders that consolidation in the banking sector was both necessary and inevitable.

"Further consolidation within Sri Lanka’s banking industry is both necessary and inevitable. In an increasingly competitive environment, as customer service expectations continue to rise, banks will be able to control the cost of intermediation only by leveraging economies of scale," he said in the bank’s 2011 Annual Report.

Excess liquidity gradually declined in 2011. By year end, the total figure was Rs. 10 billion, down from Rs. 124 billion at the end of 2010, the Commercial Bank PLC annual report noted.

"The Central Bank increased the Statutory Reserve Ratio from 7 percent to absorb excess liquidity from the market. The Central Bank also commenced overnight reverse repurchase auctions later in the year to ease the pressure on tight liquidity and to contain pressure on interest rates. In an atmosphere of stiff industry competition, banks were able to maintain interest margins at satisfactory levels, although there some tightening during the year.

"Lower interest rates across the industry led to a reduction in bank liquidity, especially in the second half of the year. Banking sector loans and advances increased significantly in 2011, in contrast to lower growth rates in deposits – a decrease also attributable to lower interest rates.

"The reduction in bank liquidity heightened pressure on interest rates, but the banking industry nevertheless recorded a growth in deposits of approximately 20 percent over the year," the bank said.
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"People will not give us a chance if we do not know how to provide services efficiently," said Dr. P.B. Jayasundera, Secretary to the Treasury who was the Chief guest at the certificate awarding ceremony for the Treasury officials who followed English Language courses conducted by the British Council under the Fiscal Management Efficiency Project which was held at the Peoples Bank Auditorium on last week.

"Fiscal Management needs efficiency. The language is one such skill and one such requirement that brings efficiency to the Treasury. In fact I am ready to spend money, provided money can bring results," the Treasury Secretary said.

He also noted the advantages of being proficient in the English language, emphasizing that such skills will be crucial in meeting the needs of a more sophisticated future Sri Lanka, where the public will demand no less than the best from its public service specially the Treasury.

Certificates were awarded to 320 Treasury officers who followed the English courses successfully.
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Overnight interbank borrowing rates hit recent highs nearing levels not seen since the end of the 30 year conflict, Central Bank data showed.

The average weighted call market rate for interbank borrowings not backed by security reached 10.11 percent last Friday, the highest since reaching 10.33 percent in July 17, 2009. For most of the first half of 2009 this rate had been at double digits but had declined since, only hitting double digit levels for a week in July 2009.

However, the country’s banking sector is facing a tightening of rupee liquidity which has seen the Central Bank printing more money in recent weeks in order to help banks maintain their overnight positions. Banks have also increasingly tapped into the reverse repurchase window of the Central Bank, which lends at 9 percent as the ‘lender of last resort’.

The overnight market repo rate for interbank borrowings backed by security has increased to a recent high of 8.98 percent as well.

The Sri Lanka Inter Bank Offered Rate has reached double digits as well, reaching 10.19 percent on Friday.
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Ceylinco leads, Union Assurance best performer
Combined premium tops Rs. 35 b mark, up by Rs. 4 b or 13% over 2010
Allianz rises to number eight, beating Indian giant LIC

The Life insurance market has seen a near 13% growth last year with impressive growth for top players, whilst Ceylinco and Union Assurance shine with outstanding performance.
The combined premium in Life insurance business of 13 players amounted to Rs. 35.13 billion, up by 12.79% or Rs. 4 billion over 2010. It is also interesting that top three saw contraction in market share whilst the balance 10 enjoyed an increase.

As per provisional industry data obtained by the Daily FT, Ceylinco Life remains the undisputed leader in the long-term insurance market with 27.94% share in 2011, though marginally down from 28.21% in the previous year. However, Ceylinco Life has enjoyed a Rs. 1.03 billion or 11.74% growth in premium to Rs. 9.8 billion. Industry analysts said the market leader enjoying one billion plus growth was impressive amidst stiff competition.

Among the top four, Union Assurance was the best performer in 2011. It not only saw premium grow by Rs. 1 billion or 29% to Rs. 4.47 billion, but was the sole player to enjoy the best growth rate in market share, up by 1.61% to 12.73% to be ranked number four. Its share in 2010 was 11.12%.

Long term insurance market’s number two Aviva NDB saw the lowest percentage growth in terms of value up by only 1% or Rs. 82 million to Rs. 7.86 billion.

Its market share dipped from 24.99% in 2010 to 22.39%. Despite the dip, it has retained the number two slot based on past growth.

State giant SLIC, which many expected to narrow the gap in terms of market share, saw a contraction of 0.10% to 19.19% in 2011 from 19.29% in the previous year. However, its premium grew by 12.2% or Rs. 733 million to Rs. 6.74 billion.

Janashakthi saw its market share improve marginally to 5.31% from 5.19% with premium growth of 10.7% or Rs. 180 million to finish 2011 with Rs. 1.86 billion. Asian Alliance on the other hand enjoyed a higher gain with premium up by Rs. 338 million or 27.2% to Rs. 1.58 billion. It finished 2011 with a market share of 4.50% up from 3.99% in 2010. Another insurer which saw higher growth than Janashakthi was HNB Assurance, up by Rs. 206 million or 19% to Rs. 1.29 billion, whilst its market share grew to 3.67% from 3.48%.

Among noteworthy performance in the bottom of the league came from Allianz, which saw its premium grow by Rs. 146 million or a hefty 71.2% from a low base to finish 2011 with Rs. 351 million. Its market share improved by 0.34% from 0.66% to 1% last year and was ranked number eight. In the process it overtook Indian life giant LIC, which saw its premium improve by only Rs. 44 million to Rs. 296 million.
Smaller local firms such as Sanasa, Amana Takaful and MBSL also enjoyed higher Life business growth than LIC. Amana saw its premium increase by Rs. 64 million or 26.7% to Rs. 304 whilst Sanasa improved by Rs. 63 million to Rs. 136 million.

Cooperative Insurance, which was ranked ninth in 2010, dipped to 11th position as it saw the lowest growth value wise of Rs. 37 million to end 2011 at Rs. 269 million. The 16% growth percentage wise however was higher than top firms such as State giant SLIC and Aviva NDB.

Signifying a healthy development, the overall Life market managed to maintain growth over the long-term unlike General insurance, which contracted in 2009 over 2008.



Last month the Daily FT exclusively reported that as per provisional data, General insurance business grew by 20.8% to Rs. 45 billion with SLIC as the market leader and Continental Insurance as the fastest growing.
Industry regulator Insurance Board of Sri Lanka (IBSL) will shortly publish official data on the 2011 performance.
http://www.ft.lk/2012/03/12/growth-for-top-life-players/