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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Investor Confidence Jolted By S&P Report

Investor Confidence Jolted By S&P Report

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1Investor Confidence Jolted By S&P Report Empty Investor Confidence Jolted By S&P Report Sun Jun 24, 2012 1:54 pm

Redbulls

Redbulls
Director - Equity Analytics
Director - Equity Analytics
Economists and opposition legislators recently drew parallels between some unsuccessful nations and Sri Lanka, which was recently ranked among a few other countries with an economic risk score of 8 and an industry risk score of 7, which puts it in a ‘very high risk’ assessment of economic resilience and a credit risk, and a ‘high risk’ valuation of economic imbalance according to Standards & Poor’s.

Sri Lanka, which is listed along with Nigeria, Tunisia, and Kazakhstan “is at the verge of collapse and problems are aggravating,” according to United National Party (UNP) Member of Parliament Dr. Harsha de Silva, who challenged the Rajapaksa regime and the Central Bank of Sri Lanka “to take full responsibility before things turn worse” and the fact that “Government can no longer fool the people as the cat is out of the bag.”

According to S&P, Sri Lanka’s economic imbalances can aggravate further if the credit growth continues at the current pace and the external position, which is considered to be moderately vulnerable, also worsens.
“Our assessment of Sri Lanka’s external position reflects the country’s weak external liquidity, and moderately high and increasing external debt. Moreover, we see a potential conflict of interest in the Central Bank’s role. In addition to policy formulation and supervision of banks, the monetary board of the Central bank also overseas Employee’s Provident Fund investments,” stated S&P.

However, the Central Bank noted the S&P ratings and the related comments on the Banking System are “factually incorrect, illogically analyzed, and is highly contradictory” adding that the Banking system is performing soundly and resilient. This fact is further justified with the performance of the banking industry improving over the past few years. According to the Bank, key financial soundness indicators of the banking sector, which accounts for 55 per cent of financial system assets, were and still are maintained at healthy levels.

“The Key Financial Indicators display a conspicuous improvement in the gross non performing advances ratio (NPA) from 5.2 per cent in 2007 to 3.8 per cent in 2011 with absolute volumes of NPA indicating only a relatively lower growth of 25 per cent in comparison to the overall credit growth of 69 per cent, during this period. This evidence is contrary to the comment on the existence of a ‘weak payment culture’. The capital base of the banking sector has increased nearly two fold since 2007 with the introduction of the Basel 2 capital standards and enhanced minimum capital requirement for banks. Profitability of the banking sector, which has continuously been on an upward trend, has further reinforced the levels of capital. These factors have contributed to the improvement in capital adequacy ratios despite the significant growth in banking assets. It is pertinent to note that the core capital ratio and total capital ratio of 5 per cent and 10 per cent, respectively, imposed by the Central Bank are more stringent than the international standards,” the bank claimed.

Meanwhile, Leader of the Opposition and the UNP, Ranil Wickremasinghe making a statement in Parliament raised concerns about the Employees’ Provident Fund (EPF) and Employees Trust Fund (ETF) and the involvement of the Central Bank as stated in the S&P report. “Full details of the investments made by these funds are not available to Parliament or its members In view of the media reports by the financial agencies and the reaction of Financial and Trade Union sectors it is imperative that the Parliament takes action to fulfill its obligations.

Otherwise we may be found fault for not exercising proper oversight in regard to these Funds. Inactivity on the part of this House will not be excused specially after the NSB scandal. Therefore this House requires details of all the transactions of the two Funds to make a considered decision regarding the truth or otherwise of these allegations and further action if any to secure the Funds.

“The Government has an obligation to this House to make available all the information required by the House to make its own determination on this matter. Not only the Ministers, even the Officials have a duty to keep the House informed of all the information required and give truthful answers.

“Article 4 (a) of the Constitution have vested this House with the powers to ensure compliance.
These two Funds and the Central Bank come under the Ministry of Finance. In these circumstances I request this Government to inform the House of the present position of the investments made by the Funds by tabling a detailed statement in the format given below of all EPF and ETF share purchases from 01 January 2010 to 30 April 2012 (inclusive) certified by the Secretary to the Ministry of Finance who is the Chief Accounting Officer of the Ministry under which the EPF and ETF operate,” said Leader of the Opposition, Wickremasinghe.

Minister of International Monetary Co-operation Sarath Amunugama who turned down the request for details stated that, “disclosure of such information has been considered detrimental to EPF’s investment team operation, and consequently to its members.”
http://www.thesundayleader.lk/2012/06/24/investor-confidence-jolted-by-sp-report/

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