CORPORATE

Chilaw Finance maintains healthy financial ratios

Financial statements for the financial year 2009/2010 of Chilaw Finance Ltd (CHF) show an improvement in financial management and marketing strategies of the organisation.

During the financial year ended March 31, 2010 the company's deposit base increased to Rs. 335 m demonstrating a growth rate of 23 percent significantly important for any company in unsettled macro economic situations as seen in the past year.

The company's liquid investment portfolio also grew by 23 percent from the last financial year figure of Rs. 342m to Rs. 419m.

The company's achievement in both, the investment and deposit portfolios is commendable, given the fact that most global and domestic financial institutions ran into difficulties during the period.

The profit before tax for the financial year 2009/2010 increased by 54 percent to Rs. 34m while the profit after tax saw a staggering increase of 116 percent over the previous year to Rs. 22m.

The Net Interest Income advanced slightly and as a percentage of total interest income the figures for the financial years 2008/2009 and 2009/2010 were 52 percent and 55 percent respectively.

The company's Capital Adequacy Ratios at the end of the last financial year remain above the regulatory minima and on par with well capitalised finance companies in the country.

Core Capital to Risk Weighted Assets Ratio (Minimum 5 percent) = 43.04 percent

Total Capital to Risk Weighted Assets Ratio (Minimum 10 percent) = 56.25 percent

Capital funds to total Deposit Liabilities Ratio (Minimum 10 percent) = 88.36 percent

The Total Assets growth was 19 percent up from Rs. 571m in the financial year 2008/2009 to Rs. 680m in the financial year 2009/2010. Meanwhile, the company strengthened the Shareholders Funds by 17 percent increasing it to Rs. 297m.

The company had no institutional borrowings during the period under review and therefore, the public deposits and shareholders funds with the company were well secured.

Furthermore, the company maintains over 50 percent of its assets in income generating liquid investments such as in Leasing, Hire Purchase, Mortgage Loans and Pawning Advances.

The Board of Directors has proposed a first and final dividend of Rs. 0.75 per voting ordinary share and Rs. 0.65 per non-voting ordinary share.

Long, short-term ratings for LDB at A, P1

RAM Ratings Lanka has reaffirmed Lankaputhra Development Bank Ltd's (LDB) long and short-term financial institution ratings, at A and P1. The ratings are largely upheld by LDB's State ownership and its importance to the Government's national development agenda.

The ratings also reflect LDB's sound liquidity position and sturdy capitalisation levels.

Nonetheless, the outlook on the long-term rating has been revised from stable to negative, owing to the influx on non-performing loans.

It also reflects frequent changes within the management hierarchy hindering the bank from executing a clear strategy.

LDB was incorporated by the Government in 2006, with the objective of strengthening the small and medium-scale enterprises sector, in line with the National Economic Plan for 2006-2016.

LDB focuses on providing funding to start-up SMEs, a segment overlooked by other financial institutions due to its inherently higher risk.

LDB merged with two other State-backed development finance institutions in 2008. Following Sate elections, LDB's previous board was dissolved and a new board appointed. However, several key management positions remain vacant.

The Bank's senior management team has also gone through frequent changes since its inception; consequently, LDB has not been able to implement a clear strategy.

The Government's mandate of providing funds to the SME sector remains the Bank's key focus.

Lending to this riskier segment has taken a toll on the Bank's credit quality. LDB's gross NPL ratio weakened from 19.18 percent as at end-FY December 2008 to 53.46 percent as at end-FY Dec 2009. The worsening trend had been fuelled by defaults on a few large loans, which also highlights the concentration risk in the Bank's credit portfolio.

LDB's largest NPL accounted for 9.54 percent of its loan base as at end-FY Dec 2009, or 18.72 percent of its total NPLs as at the same date.

The Bank's SME portfolio, inherited following the merger with Small and Medium-scale Enterprise Bank Limited, remained plagued by delinquencies.

The default rate for this portfolio clocked in at 92.26 percent as at FY Dec 2009, accounting for 18.06 percent (or Rs. 263.22 million) of the Bank's gross NPLs. Lack of parate rights (the ability to repossess assets without a Court order) has also hindered the Bank's recovery efforts.

On a more positive note, LDB's asset base stayed dominated by low-risk, highly liquid investment securities, which took up 63.38 percent of its asset base as at end-FY Dec 2009.

At the same time, the Bank's funding and liquidity positions remained strong, as shareholders' funds accounted for the lion's share (59.96 percent) of LDB's funding base.

In addition, the Bank's second-largest source of funding (29.87 percent) consists of a long-term confessional loan from the German government, with repayment only starting in 2018, spread over 16 years.

CCGF reports 100% growth

Ceybank Century Growth Fund (CCGF), with an asset base of over Rs. 1.5b continues to perform well during 2010.

The fund's net asset value grew 107.8 percent YTD outperforming the broad All Share Price Index by 4.4 percent for the period.

Ceybank Unit Trust funds are structured products which consist of a collection of investments made by unit holders themselves, and managed by Ceybank Asset Management (Pvt) Limited (CAML), a fund management company licensed and supervised under the Securities and Exchange Commission of Sri Lanka (SEC). The ownership of the assets is held by the Trustee, National Savings Bank on behalf of Ceybank unit holders.

"This was the second consecutive year where the CCGF gave a return well over of 100 percent. During the last calendar year the fund gave a 137 percent return outperforming the All Share Price Index by 11.8 percent and in the current year so far we have outperformed the index by 4 percent.

The asset allocation and diversification strategies adopted during the year enabled the fund to outperform the market for the second consecutive year," Fund Manager of CCGF Indika Rajakaruna said.

CCGF has mainly invested on listed shares in the CSE with the objective of achieving long term growth in capital.

The end to the three decade old war bolstered investor sentiments along with strong macro economic fundamentals resulted in the stock market reaching a record.

Rajakaruna said that Ceybank Funds are an excellent gateway to enter in to the financial markets for any individual who does not have sufficient time or knowledge about investments in the financial markets.

"CCGF provides an opportunity, where an investor can enter the financial markets at a very nominal level of initial investment and exit at anytime they want.

It is not necessary to have knowledge on financial markets since theses funds are being managed by Ceybank Asset Management Pvt Limited. However when selecting a unit trust product the investor has to be mindful to select a product that suits his/her risk and return appetite and investment need."

"The return of a unit trust is contingent upon the returns of the underlying assets.

For example a return of an equity fund depends on the performance of the share market, because equity funds mainly allocate their assets in the share market.

On the other hand, the money market funds invest mainly in fixed income and risk free assets where the volatility is low.

The objective of an investor in an equity fund therefore, should be the high capital growth while an investor of an income fund should be the capital preservation than the growth."

Rajakaruna noted that "People should invest for a long term to realise the optimum value on their investments and also they need to diversify their assets based on their short-term and long-term needs thereby to have an optimum risk-reward combination on the investments.

Investors should also be mindful when investing, to accept calculated risk that would be sufficiently compensated rather than speculating or chasing the return without understanding the risk properly."

Commenting on the importance of investing CAML's Chairman, K.L. Hewage said "Today we see a growing aging population in the country.

The need patterns are also shifting to retirement, medical needs and children's education.

Hence relying on interest rate based savings schemes alone may not be able to accommodate the extra needs arising at retirement age.

Therefore it is necessary for people to shift from conventional savings and move in to investments schemes like unit trusts. These investments compound returns and inflation hedging. If you can invest for a long term then the impact on total wealth will be very significant.

For example if one had invested Rs. 100,000 in CCGF at the beginning of 2001 his total wealth as at to date will be around Rs. 1.6m, that is 33 percent per annum."

Ceybank Asset Management (Pvt) Limited in addition to CCGF, has two other unit trust funds open for public investments, namely the Ceybank Unit Trust (CUT) - Income and Growth and Ceybank Savings Plus Money Market Fund (SPMF) to cater to different investment objectives.

SLIC, Best Insurance Company

Sri Lanka Insurance Corporation(SLIC) won the Best Insurance Company of the Year award at the recently held World Finance Insurance Awards.

The World Finance Awards is organised by World Finance Magazine, published by World News Media headquartered in London, which reports on capital markets, risk management, trading, technology, corporate governance and regional markets including Asia, Latin America and EMEA. The World Finance Awards identify industry leaders, individuals, teams and organisations that benchmark achievement and best practices in the financial and business world.

The awards panel scrutinises nominees under stringent criterion including a company's constant skill for innovation, originality and quality of product, as well as proof of market development and excellence in client representation.

Tudugala joins FCCISL

Former Director Marketing, Sri Lanka Export Development Board (EDB), Ranjani Tudugala has joined the Federation of Chambers of Commerce and Industry of Sri Lanka (FCCISL) as Head of International Affairs. Tudugala holds responsibility in issuing of Certificates of Origin, coordination of work with the SAARC Chamber of Commerce & Industry, organisation of overseas trade fairs and delegations, coordination of work related to Agreements and MOUs with foreign countries, establishment and operation Joint Business Councils, handling of trade enquiries, dissemination of business information and conducting seminars and workshops related to International Affairs.