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| Sunday, 23 February 2003 |
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| News Business Features Editorial
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Prospects for banking industry The Bankers Association is currently negotiating with the Finance Ministry to include the Value Added Tax (VAT) as a tax deductible expense. If the negotiations succeed, the effective rate would be reduced to seven per cent from the current 10 per cent. The most recent budget of the UNF Government introduced an additional VAT surcharge of 10 per cent on the banking sector. This will lead to a reduction in profitability in the banking sector, said Hasitha Premaratne, Research Analyst HNB Stock Brokers at the Banking Sector Conference and launch of the Banking and Finance Sector Research Report titled 'Good Times for Banks'. This was the first comprehensive research report on a sector to be published after the revival of the Colombo Stock Exchange. Five banks had been selected for the research based on their liquidity and market capitalisation. "The sector has been the most profitable in the Colombo stock market for the past few years and 2003 has been predicted to be another good year," the report said. The large and widening interest rate spreads enjoyed by banks resulted in exceptional growth last year and this environment is expected to continue over the near future. The banks will also significantly benefit from peace as capital to develop the country will be funded through the banks. "We see economic growth spurring the construction industry and expect the construction sector to increase its representation in the loan portfolio from 10 to 20 per cent," Premaratne said. "We are more positive about commercial banks as legislation has levelled the playing field with development banks. In this evolution, development banks are forced to establish themselves in commercial banking to sustain future growth. We therefore believe that the heritage development banks have a lag time versus commercial banks. "HNB Stock Brokers prefers Commercial Bank for its efficiency and cost management. Hatton National Bank will benefit from its more aggressive initiatives undertaken in the last few years. We rate Sampath Bank as the best value prospect. Both National Development Bank and DFCC Bank will take time to speed up as they are in transition from their pure development bank role," he said. |
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