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Wednesday July 24th, 2024

Sri Lanka’s stocks close 5-pct higher, recouping losses

ECONOMYNEXT – Sri Lanka stocks gained 5.1 percent on Friday, pushed up mainly by LOLC Holdings, Vallibel one and ExpoLanka holdings, recovering some of the losses made in the past week, Colombo Stock Exchange said.

Colombo’s All Share Price Index gained 387.19 points to close at 7,985.00 after gaining 5.1 percent today.

The S&P SL20 index of more liquid stocks gained 4.64 percent or 140.96 points to close at 3,180.24.

Market participants said that the market recouped due to the earnings reports which reported some strong earnings.

And as to why the market came down, participants said people with high credit exposure were asked to reduce their exposure so that reflected in the market and a bit of correction.

The market turnover was 5.1 billion rupees with 185 stocks gaining and 26 falling.

LOLC Holdings gained 33.25 rupees to close at 430.75 rupees, contributing most for the ASPI gain.

LOLC Finance, a part of LOLC, gained 1.00 rupee to close at 7.50 rupees. Brown and Company gained 19.25 rupees to close at 204.25 rupees while Browns investments gained 60 cents to close at 6.00 rupees.

Vallibel One gained 13.70 rupees or 26.35 percent to close at 65.70 rupees a share and Expolanka Holdings closed 4.60 rupees up at 51.80 rupees.

Subsidiaries of Hayleys group, The Kingsbury Plc closed 50 cents up at 12.50 rupees while Unisys Engineering closed 1.50 rupees up at 15.70 rupees, and Singer Industries Ceylon closed 6.20 rupees up at 95.40 rupees.

John Keells Holdings gained 2.25 rupees to close at 154.25 rupees.

In the Finance sector, Hatton National Bank closed 4.75 rupees up at 139.50 rupees, Commercial Bank of Ceylon gained 2.30 cents to close at 88.10 rupees, DFCC Bank closed 90 cents up at 65.80 rupees and Sampath Bank closed 9.25 rupees up at 1174.25 rupees.

Nations trust bank gained 2.70 rupees to close at 61.00 rupees and Seylan Bank gained 20 cents to close at 52.10 rupees and Pan Asia Banking Corporation gained 1.60 rupees to close at 18.10 rupees.

Central Finance Company gained 5.00 rupees to close at 110.00 rupees, and Citizens Development Business Finance gained 6.25 rupees to close at 121.25 rupees while Alliance Finance Company fell 1.20 rupees to close at 52.60 rupees.

Sinhaputhra Finance closed 10 cents down at 7.40 rupees a share while Softlogic Finance closed 20 cents up at 11.20 rupees a share and Housing Development Finance gained 10 cents to close at 40.10 rupees.

Cargills Ceylon gained 2.75 rupees a share to close at 237.50 rupees, Hemas Holdings gained 1.80 rupees to 89.00 rupees, Distilleries Company gained 1.50 rupees to close at 21.20 rupees and Ceylon Grain Elevators gained 8.25 rupees to close at 159.00 rupees and Melstacorp gained 6.70 rupees a share to close at 60.00 rupees.

In the hotel sector Eden Hotel Lanka gained 70 cents to close at 11.50 rupees, John Keels Hotels closed 20 cents up at 10.90 rupees a share and Aitken Spence Hotel holdings gained 80 cents to close at 32.70 rupees while Sigiriya Village hotel closed 70 cents down at 35.10 rupees.

Ceylon Tobacco Company gained 15.00 rupees to close at 1,100.00 rupees and Piramal Glass Ceylon closed 40 cents up at 9.60 rupees while Ceylon Cold stores closed 3.75 rupees down at 660.25 rupees.

Carson Cumberbatch gained 29.75 rupees to close at 308.75 rupees and Access Engineering gained 1.50 rupees to close at 26.50 rupees.

Nestle Lanka closed 33.75 rupees up at 1,190.00 rupees and Aitken Spence Plc closed 5.30 rupees down at 67.60 rupees.

Sunshine Holdings gained 2.90 rupees to close at 86.80 rupees a share.

Richard Pieris and Company closed 1.10 rupees up at 15.50 rupees.

Sri Lanka Telecom closed 1.80 rupees up at 37.30 rupees and Dialog Axiata closed 10 cents up at 12.20 rupees.

Royal Ceramic Lanka closed 53.25 rupees or 19 percent up at 333.50 rupees, Lanka tiles gained 50.25 rupees or 27.09 percent to close at 235.75 rupees, Lanka Wall tiles closed 64.50 rupees or 33.59 points up at 256.50 rupees and Lanka Ceramic closed 18.00 rupees up at 166.25 rupees.

The Capital Goods Industry which was the most active gained 7.2 percent today. (Colombo/Feb 12/2021)

Reported by Chanka Jayasinghe and Mahadiya Hamza

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Fitch confirms ‘A(lka)’ domestic rating of Sampath Bank Plc

ECONOMYNEXT – Fitch Ratings said it was confirming a national long-term A(lka) rating on Sri Lanka’s Sampath Bank Plc with a stable outlook, amid an improvement in operating environment, indicated by headline macroeconomic indicators.

The bank had stage 3 loans of nearly 17 percent at end-1Q24 (2023: 16.6 percent).

Fitch expected this ratio to decrease in the near- to medium-term alongside focused recoveries.

“We expect Sampath’s impaired (stage 3) loans ratio to decline gradually in the medium term, due to its recovery efforts, improvements in repayment capacity of borrowers from the stabilisation in economic conditions, and moderate loan book growth.”

The bank also had defaulted sovereign bonds. “Defaulted foreign-currency sovereign bonds, which accounted for 1.9% of assets, had impairments amounting to 52% of its holdings as of end-1Q24.”

The full statement is reproduced below:

Fitch Affirms Sampath Bank at ‘A(lka)’; Outlook Stable

Fitch Ratings – Colombo – 22 Jul 2024: Fitch Ratings has affirmed Sri Lanka-based Sampath Bank PLC’s (Sampath) National Long-Term Rating at ‘A(lka)’. The Outlook is Stable. Fitch also affirmed Sampath’s outstanding Sri Lankan rupee-denominated subordinated debt at ‘BBB+(lka)’.

KEY RATING DRIVERS

Intrinsic Profile Drives Rating: Sampath’s National Long-Term Rating reflects its own financial strength, which is highly influenced by its exposure to the sovereign’s weak credit profile (Long-Term Foreign-Currency Issuer Default Rating (IDR): RD; LongTerm Local-Currency IDR: CCC-) and the ongoing sovereign debt restructuring, which had been putting pressure on Sampath’s credit profile. The rating also reflects Sampath’s modest domestic franchise as Sri Lanka’s fifth-largest commercial bank.

Stabilising OE: Sri Lankan banks’ operating environment (OE) continues to show signs of stabilisation, as evident in sustained improvements in reported headline macroeconomic indicators, supporting the recovery in banks’ operational flexibility.

Further improvement to the bank’s OE remains contingent on successful execution of the sovereign’s external debt-restructuring exercise alongside the restoration of the sovereign’s creditworthiness, given the strong link between sovereign financial health and banks’ operating conditions.

Economic Stabilisation Aids Business Profile: We believe the gradual improvement in economic conditions should support Sampath’s ability to generate and defend business volumes, despite the vulnerabilities from the weak sovereign and economy. We expect a moderate resumption in lending alongside the gradual economic recovery, similar to peers. This should result in a higher loan book share of assets (net loans to assets of 48.0% at end-1Q24) in the medium term.

Sovereign Risk Remains: Sampath’s risk profile assessment continues to reflect its exposures to the weak sovereign and economic environment. Defaulted foreign-currency sovereign bonds, which accounted for 1.9% of assets, had impairments amounting to 52% of its holdings as of end-1Q24. In addition, local-currency-denominated treasury securities contributed to 34% of its assets at end-2023, of which 59% were treasury bonds and the remainder in treasury bills, which makes the bank susceptible to the sovereign’s repayment ability and liquidity status.

Impaired Loans Decline Gradually: We expect Sampath’s impaired (stage 3) loans ratio to decline gradually in the medium term, due to its recovery efforts, improvements in repayment capacity of borrowers from the stabilisation in economic conditions, and moderate loan book growth. Prolonged economic challenges that continued for most of 2023 led to a further impaired-loans accretion, which together with loan book contraction resulted in the bank’s impaired-loans ratio rising to 16.6% by end-2023 (end-2022: 11.6%), above the industry’s 12.8%.

Declining Risks to Profitability: We believe downside risk to profitability from the restructuring of sovereign bonds has diminished, and any incremental impairment, if necessary, will be manageable, given the existing provisions on the holdings. We expect Sampath’s operating profit/risk weighted assets ratio (1Q24: 4.8%, 4-year average 3.2%) to moderate over the medium term on account of the decline in interest rates. This will be partially offset by lower credit costs, alongside the increase in risk density from the growth in the share of loans.

Downside Risks to Capital Manageable: We believe downside risk to capital from the bank’s exposure to defaulted sovereign bonds (1.9% as of end-1Q24) is manageable, as per the announced restructuring terms – given the bank’s provisions on these instruments amounting to 52% on the exposure at end-1Q24. The regulatory common equity tier 1 (CET1) capital ratio declined marginally to 15.6% by end-1Q24 (excluding 1Q24 profit) from 16.7% at end-2023, following a cash dividend payment, but remains one of the highest among Fitch-rated large Sri Lankan banks.

Funding and Liquidity Risks Remain: We believe Sampath ‘s funding and liquidity stress has eased on both the foreign- and local-currency fronts relative to the crisis period.

This was due to favourable external sector flows and the bank’s focus on liquidity preservation, as reflected in its high liquidity coverage ratio. We believe these developments have reduced the risk of bank failure. However, its funding and liquidity profile – particularly in foreign currency – remains susceptible to sudden changes in creditor sentiment driven by adverse changes to the sovereign’s credit profile, similar to peers.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

The bank’s National Rating is sensitive to a change in its creditworthiness relative to other Sri Lankan issuers.

A deterioration in Sampath’s key credit metrics beyond our base-case expectations relative to peers would also lead to increased pressure on the rating, which is driven by its intrinsic financial strength.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

Positive rating action on the sovereign may lead to an upgrade. A sustained improvement in key credit metrics beyond our base-case expectations relative to peers, could also lead to an upgrade.

OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS SUBORDINATED DEBT

Sampath’s Sri Lankan rupee-denominated outstanding subordinated debt is rated two notches below the National Long-Term Rating anchor. This reflects Fitch’s baseline notching for loss severity for this type of debt, and our expectations of poor recoveries.

There is no additional notching for non-performance risks, as the notes do not incorporate going-concern loss-absorption features.

OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES

The subordinated debt ratings will move in tandem with the bank’s National Long-Term Rating.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

Additional information is available on www.fitchratings.com (Colombo/Jul24/2024)

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Sri Lanka presidential candidate cash deposits not updated in 43 years: MP

MP Dullas Alahapperuma

ECONOMYNEXT — The cash deposits Sri Lanka’s presidential candidates are required to pay have not been revised in 43 years, opposition MP Dullas Alahapperuma said, calling for a significant increase in order to save money and to prevent proxy candidates.

Alahapperuma told parliament on Wednesday July 24 that, as per the Presidential Elections Act No. 15 of 1981, a candidate nominated by a recognised political party has to deposit only 50,000 rupees while an independent candidate, or a candidate nominated by any other party or by an elector, must pay only 75,000 rupees.

The MP said the cabinet of former president Gotabaya Rajapaksa had approved an amendment to the act to increase these amounts.

“The election commission proposed that this be increased to 2.5 million rupees for political parties and 3 million for independent candidates. This was a pertinent proposal. There were 35 candidates who contested the last election,” he said.

The Act notes that “Where the number of votes polled by any candidate does not exceed one-eighth of the total number of votes polled at the election, the deposit made in respect of such candidate shall be declared forfeit and shall be transferred by the Commissioner from the deposit account to the Consolidated Fund, and in every other case the deposit shall be returned to the person who made the deposit, as soon as may be after the result of the election is declared.”

At the 2019 presidential election, said Alahapperuma, the deposits made by all candidates besides the top two contenders were transferred to the Consolidated fund.

“The number of candidates might be 80 or 85 this election. Many candidates have no basis for contesting, and it costs a vast sum of money to print ballots and other expenses, not to mention the time consumed for counting votes. This is not just to prevent proxy parties from contesting but also to save a lot of national wealth,” he said.

Leader of the House Susil Premajayantha responding to Alahapperuma said, however, that it would not be possible to pass the proposed amendment in time for the 2024 presidential election.

“The election commission made this proposal some time ago. But we know that to gazette a bill, we need to first draft the bill, the cabinet has to decide on it, send it back to the Legal Draftsman, and receive clearance from the Attorney General. So there is no time to bring this amendment for the upcoming presidential election. You can propose it at the next one,” he said. (Colombo/Jul24/2024)

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Sri Lanka deaf driver license project to be expanded islandwide

ECONOMYNEXT – A pilot project that allowed hearing-impaired persons to obtain light-vehicle driving licenses has been successful and will be rolled out island-wide, Sri Lanka’s Motor Traffic Department said.

The project was implemented in the Gampaha District initially where 50 licenses were provided to drivers who qualified.

The project was expanded to the Kurunegala District, where 150 drivers obtained licences. The drivers were given a probation period.

“Actually, this was a very successful project. It has been almost a year and we haven’t received a single complaint yet,” Motor Traffic Department Commissioner – Driving Licence Wasantha Ariyarathna told reporters on Wednesday.

“We plan to roll it out to all 25 districts islandwide.”

The issuance of driver’s licenses to hearing impaired persons will be done on a bi-annual renewal basis.
(Colombo/Jul24/2024)

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