Sri Lankan Stock market at 4-year low; rupee flat: Soon will be devalued more;

Sri Lankan Stock market at 4-year low; rupee flat: Soon will be devalued more;

The market was strong and All Share index WAS around 2,500 points when Mahinda Rajapakse became Prime Minister in April 2004, four and a half years ago.
The market was 2,600 when he became President in November 2005.
Since then the market has crashed over 45%, as well as the rupee has been
devalued against the Euro Dollar and the weak US dollar substantially.
Corporate profits has reduced tremendously on all sectors, including exports
such as Tea, Rubber, and garments. It will get worse when the GSP Plus + concessions
would be withdrawn affecting garment and 100 other exports.

The economy is in great danger of collapsing with defense expenses at 2 Billion dollars, Tourism and industries in the doldrum. The security expenses also has increased as well as Freight and Insurance for imports and exports. -T4J.
Sri Lanka is in a mode of NO CASH, NO HOPE AND NO WONDER?

Stock market at 4-year low; rupee flat

COLOMBO, Nov 25 (Reuters) - Sri Lankan shares fell 1.81 percent on Tuesday, again closing near a four-year low led by negative sentiments triggered by global and local economic woes.

The rupee closed flat at 110 to the dollar, supported by the central bank.
The Colombo All-Share index <.CSE> fell 29.94 points to 1,625.25, its lowest close since Jan. 25, 2005.

It is down 36 percent so far this year and its latest downward spiral has been spurred by poor corporate earnings, high interest rates, a rupee shortage and the global downturn.

“Overall negative sentiments brought down the market,” Hussain Gani, associate director at Asia Securities, said. “Cautious investors traded only in thin volumes.” Analysts said some positive sentiment might return if government forces capture Kilinochchi, the town the Liberation Tigers of Tamil Eelam (LTTE) have declared as the capital of the separate state they want to create for Sri Lankan Tamils. “If Kilinochchi is captured, the market will have an immediate surge as it has dropped to very low levels in the last few days,” a trader said.

Traders said there was speculation government forces had already entered Kilinochchi town but was withholding the announcement of it until Thursday, when LTTE leader Vellupillai Prabhakaran is due to give his annual Heroes’ Day speech. The rupee closed flat as the central bank supported it at 110 per dollar level continuously, dealers said.

The central bank on Tuesday said commercial banks’ statutory reserve ratio would be cut by 150 basis points to 7.75 percent with effect from Friday to ease a rupee liquidity crunch.

Currency dealers said they expected the move would help support the rupee by giving commercial banks enough rupees to buy dollars. The central bank on Oct. 30 allowed limited depreciation of the rupee from 108 a dollar level. The rupee fell 1.8 percent on that day, but the central bank since then has been protecting the currency at 110 by selling dollars through a state bank. Currency dealers say the central bank will be forced to allow the rupee to depreciate, as it is using foreign currency reserves at an estimated rate of $20 million a day to support it now.

The interbank lending rate or call money rate edged up to 18.704 percent from Monday’s close of 18.608 percent.

Restructure to avoid crisis Nivard tells banks

By Uditha Jayasinghe
The banking industry is facing a ‘crisis of confidence’ and need to restructure themselves and find solutions for internal issues to face the crisis ahead, according to Central Bank Governor Ajith Nivard Cabraal.

Speaking at the Seminar on Current Global Financial Crisis and its Implications to Sri Lanka organised by the Strategic Enterprises Management Agency (SEMA), he insisted that Sri Lanka was safe from the gloom and doom predictions emanating from the international markets due to foresight planning, but admitted that there is more to be done.

“The global financial crisis is akin to the tsunami and similarly the rehabilitation process must be done over a long period of time. If there are problems within the banking industry, then they must come forward and suggest solutions to the policy makers. An impetus must emerge from within the industry itself,” he said.

Reiterating the prudent action taken by the Central Bank in early 2007 to strengthen commercial banks, Cabraal went on to praise the government for its foresighted approach.

However, contrary to the optimistic stance by the government, industry pundits insist that consolidation of private banks is essential to combat declining deposits.

Addressing the gathering, Sampath Bank Strategic Planning Senior Manger M. Akmeemena pointed out that a franchise system must be adopted if banks are to attract smaller deposits, which is essential in an economy experiencing slow growth. He also noted that banks face a dilemma in managing multi-delivery channels.

“On one hand, the reason that the Sri Lanka banking industry has managed to escape the global crisis relatively unscathed is its underdeveloped state. Nonetheless, it cannot be denied that Sri Lanka has bigger problems than the global recession to deal with. Domestic banks are largely limited because of contained monetary growth and restricted capital to support risk on assets. We have to face the challenge of creating enough capital for more investment. Even though most blame the hampering tax regime it must be confessed that banks do not create value for investment, which is an even bigger constraint,” he said.

Indicating a detailed graph, Akmeemena compared the efficiency levels of state and private banks and stressed that the latter were not necessarily more competent, despite being commonly considered so. “The need of the moment for any bank is capital infusion, but how can they get it?” he queried.

Suggesting that government policy makers and bankers should join forces Akmeemena called for consolidation of banks. He also cautioned that lowering tax pressure may not be as beneficial a solution as first imagined because profit funneled back presents limited options for bankers. “In Thailand, 157 banks were merged to 55 in just two years. We have been discussing for decades but it has not happened. Now circumstances will force us into it. Banks are dinosaurs. They have not utilised the IT potential of this sector. Conventional banking has failed to penetrate rural masses.”

He further added that if mobile phone operators can earn Rs.2 billion a month from small amounts of Rs.100 and Rs.200 then the banking industry must learn to tap that space as well.