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Friday July 12th, 2024

IMF says suspension of Sri Lanka parate execution should be ended ASAP

ECONOMYNEXT – The International Monetary Fund has said a suspension on parate execution, or halting foreclosure decisions taken by banks in Sri Lanka on bad loans, should be ended as soon as possible.

Sri Lanka bank non-performing loans went up as much as 13 percent, with a combined hit from a currency crisis which came on top of the Coronavirus pandemic triggering a slew of auctions of collateral of distressed businesses.

“The suspension of banks’ repossession of collateral (“Parate” executions) 22 will hinder the banks’ ability to manage NPLs and price credit risks and should be lifted as soon as possible while encouraging a negotiated NPL solution to avoid excessive liquidation,” an IMF report released after the approval of the latest review of the IMF said.

In Sri Lanka NPLs, spike after currency crises, which intensified after the end of a civil war and came back-to-back under so-called flexible inflation targeting as attempts are made to target a high inflation level (about 5 percent) despite not having a clean floating regime.

Under the operating framework money was also printed to target growth (potential output).

The suspension of parate execution championed by Justice Minister Wijedasa Rajapsaksa was one of the state interventions made after the economic crisis.

It is not clear whether the sudden state interventions spooked banks, delaying a recovery in credit.

Banks have warned that the suspension of parate execution will keep interest rates higher for all borrowers.


Sri Lanka parate suspension increases risk premium, endangers deposits, banks say

Expanded state intervention after currency triggered by central banks and delays in recovery is labelled the ‘ratchet effect’ by classical economists.

The best known such interventions – also known as regime uncertainty – came during the ‘Great Depression’ of the United States, which delayed a recovery by killing investments leading to so-called double dips.
The Great Depression was triggered by the Fed after it invented the bureaucratic policy rate in the 1920s.

IMF programs themselves involve a series of tax and other measures which can jolt economic agents. A hike in income tax rates on top of a currency collapse in the current currency crisis is said to have contributed to a brain drain.

In addition to a policy rate enforced by liquidity tools (standing facilities, reverse repo operations) macroeconomists also started to cut taxes as ‘macroeconomic policy’ gained ground in the last century undermining rule of law, critics say. (Colombo/June 14/2024)

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Sri Lanka appoints new Attorney General

ECONOMYNEXT – Sri Lanka’s President Ranil Wickremesinghe has appointed K A Parinda Ranasinghe PC as Attorney General.

He was appointed in terms of Article 61E (b) of the Constitution of Sri Lanka, the president’s media division said.

The new AG received the appointment from President Wickremesinghe at the Presidential Secretariat on Friday.

He fills the post after the retirement of former Attorney General Sanjay Rajaratnam. (Colombo/Jul12/2024)

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Sri Lanka rupee closes stronger at 301.70/302.00 to US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed stronger at 301.70/302.00 to the US dollar on Friday, from 302.80/303.00 to the US dollar on Thursday, dealers said, while bond yields were up.

A bond maturing on 15.12.2026 closed at 10.90/11.00 percent, up from 10.85/95 percent.

A bond maturing on 15.12.2027 closed at 11.75/80 percent, up from 11.80/88 percent.

A bond maturing on 01.05.2028 closed at 11.90/12.00 percent.

A bond maturing on 15.09.2029 closed at 12.10/30 percent, up from 12.15/25 percent. (Colombo/Jul12/2024)

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Sri Lanka stocks close up, muted activity

ECONOMYNEXT – The Colombo Stock Exchange closed up on Friday, data on its site showed.

The broader All Share Index closed up 0.35 percent, or 41.71 points, at 11,843; while the more liquid S&P SL20 Index closed up 0.56 percent, or 19.20 points, at 3,454.

Turnover was low at 653 million.

“The market picked up a bit from yesterday but it’s still below the psychological 12,000 mark,” Softlogic Stockbrokers said.

“Local retail participation drove the market predominantly.”

John Keells Holdings Plc brought in Rs109mn to the turnover, and the share closed flat at 194.50.

Melstacorp Plc contributed in Rs104mn to the turnover, and the share closed flat at 85.00.

Sentiment around the banking counters was mostly negative. Sampath Bank Plc closed down at 77.00, closed flat at 101.25, and Hatton National Bank Plc closed flat at 195.25.

The top contributors to the ASPI were Commercial Bank of Ceylon Plc (up at 103.50), Bukit Darah Plc (up at 397.00), and Hayleys Plc (up at 101.00).

Foreign participation remained low as well. There was a higher net foreign outflow of 101 million.

“Foreign selling was seen on John Keells Holdings, and banking counters; Hatton National Bank Plc (down at 195.00), Pan Asia Banking Corporation Plc (down at 20.70), and Commercial Bank of Ceylon Plc.

There was selective foreing interest on the diversified financials sector, particularly in companies that had vehicle leasing portfolios. “We think this might be due to the news of the vehicle import ban possibly ending.”

LOLC Holdings Plc closed up at 440.50, People’s Leasing and Finance Plc closed up at 12.20.

Softlogic Holdings Plc which announced the date of its rights issue, closed up at 8.50. (Colombo/Jul12/2024)

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