Plans to integrate insurance with banking products                                                                           

By Samantha Whybrow
The Bank of Ceylon will soon launch a strategy to help tackle the country’s crippling inflation, it has been revealed.
While the complete strategy is still being revised, it is learned that the bank is currently rebalancing its portfolio in order to enhance access to agri-finance for farmers in the country.

“Some of the major factors for inflation such as increasing oil prices and issues to do with the war are not things the bank can do anything about,” said the bank’s Chairman, Gamini Wickramasinghe.

“But food security is a major issue for Sri Lanka, with the Central Bank also confirming that supply deficiencies in some key agri-commodities are a main factor influencing inflation. And we can do something about that.”
Inflation was running at around 25 percent in April, with the BoC pointing out that food accounted for 46 percent of the consumer price index, which is used as the measure of inflation.

In an interview with The Nation Economist last week, the BoC said it would identify the key commodities that are impacting most on the supply side causes of inflation and assist farmers, principally through agri-finance.
“We will see whether we can help farmers grow that particular item and reduce the imports of that commodity and thereby save on foreign exchange,” said Wickramasinghe.

“We believe this will benefit the country because we help employment and make the needed products available at economic rates in the market, thereby directly and indirectly helping to deal with inflation.”
The bank intends to offset the high risks associated with providing more agricultural loans by ensuring farmers have insurance.

“By integrating insurance with banking products, such as loans, we mitigate risk and also provide the farmer a way to not become ‘delinquent’ or basically a ‘bad loan’,” said Wickramasinghe, who is also Chairman of the Insurance Board of Sri Lanka.
The Agricultural Insurance Board is already involved with the BoC regarding this.

In a press release earlier in the year, the Central Bank stated consumer prices had increased due to a low supply of domestically produced agricultural commodities such as rice, vegetables, coconut, and fish.

It has continually pointed out that inflation has been exacerbated by increases in world food and oil prices.
Critics, however, have continued to claim that mismanagement of the economy is one of the major causes of the extremely high inflation in the country.

Meanwhile, the BoC has stated more needs to be done to encourage savings in the country, with only 20 percent of people having savings accounts.
It seems that plans to encourage savings, however, are being thwarted by high inflation.

“If the inflation is high, then when you target rural poor citizens to get into the habit of saving they can only expect to get a 13 percent return on their saving, and with inflation running at 30 percent at the end of the year their hundred rupees is only worth eighty rupees,” said Wickramasinghe.
“The government, the BoC, and other responsible institutions have to find a solution to this problem,” he said.

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Xerox teams up with SLT

Sri Lanka Tourism (SLT) last week took a major step towards building the image of Paradise Island Sri Lanka with Xerox Corporation, the world’s leading document management technology and services enterprise.

SLT –Xerox tie up is aimed at showcasing the destination through the theme ‘The Island of Colour.’ Commenting on the proposal, Chairman, Sri Lanka Tourism Renton de Alwis said “ This is a high tech initiative where SLT benefits from the high end resources offered by a leading global brand.”

In the picture from (L to R) are Dilip Mudadeniya, Managing Director, Sri Lanka Tourism Promotion Board, Andrew Horne, MD Developing Market Operations Xerox India Ltd, Renton de Alwis, Chairman SLTB and Rukshan Sheriff, COO, Lumen Technologies Ltd - See the full story on page 5

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CPC seeks to hedge more after profiting over US $ 13 mn

By Santhush Fernando
State oil giant- Ceylon Petroleum Corporation (CPC) had earned over Rs 1.3 billion through hedging although losses for the same period had had topped almost Rs 8 bn.

CPC in its latest bid with Standard Charted Bank (SCB) was able to earn a princely sum of USD 6.2 million. To cut down its losses CPC also hedged with Citi Bank which added another US $ 7 million to its coffers. However the state oil giant had exceeded its single borrower limits with both banks, Minister Fowzie said.

Earlier a Cabinet Sub Committee was appointed headed by Treasury Secretary Dr. P B Jayasundara to propose a price revision for fuel, which had not seen any change since January. Global oil prices have skyrocketed with the price of a barrel of the benchmark light sweet crude oil surging from US$ 90 end 2007 to 135 within a period less than six months.

CPC Chairman Ashantha de Mel said that although it was essential to increase prices, as to when it would be done would not be made public as crafty dealers had stockpiled fuel allegedly without distributing.

CPC has suffered a staggering loss of Rs 7, 231 million up to April 15. A Rs. 2,045 million loss was incurred during January, the month in which the earlier price revision took place, while Rs. 1,216 and Rs. 3,769 million had to be borne by the CPC during February and March respectively with another Rs 1,815 million loss incurred up to April 15.

At present CPC is making a loss of Rs. 60 per litre for a diesel and Rs. 40 a litre of kerosene oil, with the former alone amounting to Rs. 5.2 billion though it had a significant gain of Rs. 200 million from selling petrol at Rs. 5 above its cost

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Emerging economies may face ‘a great inflation’

Emerging economies are being warned they face a “Great Inflation” similar to that experienced by rich countries in the 1970s.
In a special feature last week, The Economist magazine writes that five of the ten biggest emerging economies could have inflation rates of 10 percent or more by July.

This would mean two-thirds of the world’s population would be struggling to cope with double digit inflation.
The magazine says official figures understate inflationary pressures in many emerging economies, pointing out that widespread government subsidies and price controls are a major reason for this.

It also adds that price indices are often skewed by a lack of data or government cheating.
The recent jump in inflation in most countries has been caused mainly by surging oil and food prices, according to the magazine, which accuses central banks of loosening monetary policy rather than tightening it.
It also says many of the central banks in these countries are not independent of government so face intense political pressure to keep rates down and boost growth and jobs.

The magazine points out the situation in many emerging economies bears all of the hallmarks of the beginning of the ‘Great Inflation’ seen in the 1970s.
Among other things, it warns these countries not to repeat the blunder of central bankers in the rich world in the 1970s who focused on core inflation as a reason for holding interest rates below the headline inflation rate.

To maintain their new-found strength, says The Economist, the policymakers in emerging countries need to keep a firm grip on inflation.
The longer it is allowed to climb, it says, the greater the danger to future economic growth. - SW

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Serendib to break local wheat flour monopoly

By Santhush Fernando
The official commissioning of the flour milling plant of Sri Lanka’s second player in hitherto monopolized wheat flour industry- Serendib Flour Mills (Pvt) Ltd will take place tomorrow.
Market analysts say that the entry of a second player will create much needed competition in the Sri Lankan market, while Serendib Flour mills sees much scope in milling of wheat flour, for the local market.

Chief Executive Officer/ Director of Serendib Flour Mills (Pvt) Ltd, Sathak Abdul Kadar, told The Nation Economist that with further investments, its parent company will become the largest foreign investor in Sri Lanka.
With future expansion, Serendib Flour mills anticipates increasing production capacity to 2,000 metric tones per day, from initial milling capacity of 1,000 metric tones per day.

The company is a joint venture of National Flour Mills, Emirates Trading Agency (ETA) and Al Ghurair Group. National Flour Mills has extensive expertise in flour industry, having operations in Dubai, Jabel-ali, Lebanon, Algeria and Sudan. Third largest conglomerate in United Arab Emirates (UAE) - the Al Ghurair is fully diversified, with major business interests in banking, insurance, shipping, electro-mechanical, education, power, trading, natural food services, construction, cement and aluminum industries in over twenty countries. Market analysts say that the wheat flour industry has immense potential, as the price of a ton of unprocessed wheat is 20 US$ while the price of a ton of processed wheat flour stands over US$ 30.

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Watawala Plantation’s Waltrim fire yet to be disclosed

By Indika Sakalasooriya
A destructive fire broke up recently in Waltrim, one of the tea production units of Watawala Plantation Limited located in Lindula, Nuwera Eliya area and the factory is now said to be at a state beyond operational standards, The Nation Economist reliably learns.

Waltrim is a 150 year old factory and according to stock market analysts it is one of the most productive production plants among plants owned by the Watawala Plantation such as Carolina, Vellai Oya, Strathdon, Henfold and Tangakelle.

In its pursuit to obtain more information of the incident The Nation Economist made several attempts to contact Watawala Plantation’s Chairman G. Sathasivam which proved futile. Thereafter our attempts to contact the company’s MD Vish Govindasamy also proved fruitless.

According to market sources the company has not yet officially issued a disclosure statement to the Colombo Stock Exchange although the incident took place a few weeks back.

However as the plantation sector analysts point out if the factory is in ruins and not repairable in a minimum time, it will certainly affect the profitability of the company.

For the year 2006/20007 Watawala Plantation has recorded a Rs.315 million increase in revenue over the previous year to close at Rs.3.16 billion. This year’s growth is about 11 percent higher than the growth reported last year. And also the export revenue reached a record high of Rs.861 million, contributing 27 percent of the company’s revenue.

According to the company’s 2006/2007 annual report tea continues to remain as the major contributor to the company’s revenue, accounting for almost 53 percent of the total revenue.

Watawala Plantations annually produces about 9 million kilos if tea and also accounts for 2% of total tea production in Sri Lanka. Apart from tea the company has interests in rubber and palm oil.

As at February 2008, Estate Management Services had the controlling 58.75 percent stake in Watawala Plantations. However Sunshine Holdings control 51 percent of Estate Management, which makes them the majority stake holder of Watawala.

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HNB March quarter net profit more than doubles

Hatton National Bank’s net profit for the March quarter more than doubled to 741 million rupees with group turnover rising 31 percent to 8.9 billion rupees, according to a stock exchange filing.

The bank’s interest income rose 37 percent to 7.5 billion rupees while interest expense increased by half to 4.5 billion rupees with net interest income up 22 percent to almost three billion rupees.

Provision for bad debts and loans written off fell 59 percent to 177 million, while foreign exchange and other income increased during the period. Specific provision for bad loans fell by half to 143 million rupees. The bank’s total deposits fell by one percent to 175.6 billion rupees while assets remained stagnant at 232 billion rupees.

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