SEC moots Securitisation Act
 

by Elmo Leonard

The Securities and Exchange Commission of Sri Lanka is proposing an Act of Securitisation which is expected to be drawn up in a month, SEC Director General Channa de Silva said.

Securitisation is the use by corporations of the securities markets as a source of external finance, instead of banks and other financial intermediaries. All sorts of things can be securitised, from car loans to mortgage and credit-card receivables.

By aggregating existing debt of this kind in pools, and then issuing new securities backed by the collateral provided by the pool, securitisation does two things: It gives other investors the opportunity to share in profits; it enables the originating banks and financial institutions to spread their risk without having to sacrifice a share of the profit.

Securitisation has much to do with the development of the capital market. In USA the capital market is 3.5 times the size of the nation's banking sector. An economy is as developed as its capital market. Malaysia, an emerging nation has a highly developed capital market.

Cambodia is an example of a underdeveloped economy which has no share market, Dr. Datuk Ali Kadir, the CEO and Head of DIG Asia, told the media in Colombo.

Under this plan, the local capital market must play a greater role and ideally overtake the banking sector.

The Malaysian experience and the people behind the development of the capital market in Malaysia are being incorporated into drawing up this plan. Two men who helped draw up the Malayan capital development plan Dr. Datuk Ali and Chow Sang Hoe, Executive Director of Ernst and Young, Kuala Lampur, were in Sri Lanka last week.

Sri Lanka is also drawing up its Capital Market Development Plan, SEC Chairman, Gamini Wickremasinghe said. The first stage of the plan will be drawn up in two-three months. The second implementation plan, will begin in three to four months. The Malaysian and Sri Lankan plans will be incorporated to suit local conditions.

Dr. Datuk Ali also currently sits on the board of the Labuan Offshore Financial Securities Authority. He is a former Chairman of the Malaysian Securities Commission (SC) and headed that nation's Capital Market Advisory Council.

He is internationally known because of the services he has provided and the number of posts he holds. Dr. Ali said that in the Malaysian experience, in 1970, 52 percent of Malaysians lived below the poverty line. Today, 5 percent are counted under the poverty line, while some are slothful.

Today 3 percent of Malaysians are unemployed. The Malaysian economy which developed from the 1970s had its pitfalls. Caught up in the South East Asian Economic recession in 1998, the Malaysian stock market fell by 80 percent, the currency by 50 percent. Malaysia had to fight back and came out with a structured plan, while being a country which adheres to implementing its plans.

Answering questions, De Silva said that Sri Lanka will unlike in past experiences, implement its capital development plan.

Answering questions, Dr. Ali said that they would probably recommend the privatisation of State owned non profit making corporations. But, he would not use the word privatisation; there being other words. In the Vietnamese experience, the word acquisition was used in the conversion of loss making corporations into profit making ventures.