‘An economic revival in Sri Lanka will be aided by an aggressive vaccination drive, initiatives aimed at strengthening the country’s reserve position through the attraction of foreign investment, strong expatriate earnings, better worker remittances coupled with fiscal support and an accommodative monetary policy stance to increase domestic activity, John Keells Holdings PLC Chairman Krishan Balendra said.
On the challenge faced by the state of reviving the economy while containing the pandemic, an economic and healthcare response based on a balanced and evidence-based analysis and a participatory and consultative approach, particularly with healthcare officials will prove beneficial, Balendra said in an interview with The Island Financial Review.
By Lynn Ockersz
What are the main business challenges faced by JKH in these economically volatile times?
The continued impacts of the COVID-19 pandemic on consumer behaviour, is currently the biggest challenge being faced by economies and businesses worldwide, to which JKH is no exception. Subdued sentiment and periodic disruptions and challenges to business activity in the short-term to contain the pandemic is envisaged until a critical mass of Sri Lanka’s population is vaccinated, particularly in high-risk areas. The Government’s aggressive ramp up of the vaccination drive across the country in view of its target of vaccinating 13 million people by September 2021, which covers the population of adults over the age of 30 years in the country is expected to drive recovery, as witnessed in other countries.
The experience with the previous outbreaks and the subsequent recovery post easing of restrictions has resulted in the Group better navigating the ongoing outbreak. Although our businesses, excluding Leisure, continue to recover and better navigate through these volatile times, the performance of the Leisure businesses continue to be significantly impacted.
Do you expect the current decline in the per capita income of Sri Lankans to negatively impact sales growth in your supermarkets?
Although a decline in per capita income of Sri Lanka will have a bearing on overall spending patterns and purchasing power of individuals, the impact on sales growth in the Supermarket business is somewhat insulated given the nature of operations, as consumer baskets primarily consist of essential goods, personal and other daily household items. In addition, the growing popularity of modern trade due to the convenient shopping experience and access to diverse product categories at attractive prices is expected to off-set this current decline in per capita income, to an extent.
There has been a net foreign outflow of Rs. 63.5 billion from our stock market in recent times. What are the main reasons for this development and how could it be curbed?
Although the Government has honoured its debt servicing obligations to-date, the country has witnessed multiple downgrades in Sri Lanka’s sovereign rating in the recent past on the back of a sharp rise in the sovereign debt-to-GDP ratio, increasing challenges in lieu of external debt repayment, weakening local currency and liquidity constraints. Such macroeconomic challenges have also raised concerns surrounding a potential depreciation of the local currency which continue to be a primary concern for foreign investors. An increase in the number of COVID-19 infected cases and related deaths, especially with the onset of the Delta variant in the country, as witnessed in other countries, have also exacerbated this situation thereby impacting doing business and dampening investor sentiment.
In addition to continuing the aggressive vaccination drive, initiatives aimed at strengthening the country’s reserves position through the attraction of foreign investment, strong export earnings, better worker remittances coupled with fiscal support and an accommodative monetary policy stance to increase domestic activity will aid revival.
Currently, the state is facing the challenge of reviving the economy while containing the pandemic and its ill consequences. How best could this be achieved?
The twin imperatives of safety versus the economy is a conundrum that is common to all nations. Striking a balance between public safety and economic viability, has various practical complexities. We have witnessed varying responses from developed as well as developing nations from across the globe; Sri Lanka must leverage on such learnings and experiences in addressing these challenges. Sri Lanka is well geared with access to various expertise both on the economic front and the healthcare front, which the country should leverage on to implement and explore innovative and wider range of policy interventions.
As such, I believe an economic and healthcare response based on a balanced and evidence-based analysis and a participatory and consultative approach, particularly with healthcare officials, will aid the Government in reviving the economy while containing the pandemic.
In what main ways could the fortunes of the hotel and leisure sectors be turned around?
The hotel and leisure sectors continue to be significantly impacted by the COVID-19 pandemic, particularly in response to new outbreaks and increased travel health and safety protocols such as mandatory testing and quarantine requirements. Whilst we have witnessed rapid vaccination drives in countries such as the USA and UK, the relatively slower pace of the vaccination roll out in many other countries continues to hinder a full resumption of international travel.
The performance of Sri Lankan tourism will also largely depend on the revival of regional and global travel when travellers regain confidence. We expect Sri Lankan leisure market will recover with the aggressive ramp up of the COVID-19 vaccination programme in the country similar to the recovery trends we witnessed in the Group’s hotels in the Maldives, where the occupancies at our hotels are higher than anticipated and the continuous momentum of forward bookings in the Maldives is also encouraging. This also reflects a significant ‘pent up’ demand for leisure travel once revival commences.
Focused destination marketing efforts by the SLTDA and the Government coupled with a plethora of initiatives aimed at reviving the industry is also expected to aid a turn around. The destination’s close proximity to two of the largest outbound travel markets, India and China, coupled with improving flight connectivity and investment in infrastructure will spearhead growth beyond the pandemic. In this regard, ‘Cinnamon Life’ is also uniquely positioning to aid Colombo and Sri Lanka, in positioning itself as a tourism hub given its multi-use facilities and iconic design.
Sri Lanka Insurance enters into a strategic tie up with Sri Lanka Medical Association
Sri Lanka Insurance signed a Memorandum of Understanding (MoU) with the Sri Lanka Medical Association (SLMA) to improve healthcare knowledge, enhance safety and ensure providing best insurance solution for healthcare professionals in Sri Lanka.
The agreement between the two organizations intends to facilitate the upcoming International Medical Congress which will be conducted virtually on the 21st of September 2021, with the participation of medical practitioners, medical students, and researchers in the field of medicine. Further the agreement will facilitate awareness building initiatives on road safety and introduce a special insurance scheme for the registered members of the Sri Lanka Medical Association.
The MoU outlines the shared and individual commitment of Sri Lanka Insurance to provide a unique insurance scheme for every registered member of the Sri Lanka Medical Association. The insurance scheme will make provisions for a vast variety of benefits suitable for the risk management requirements of modern-day professionals, including comprehensive motor insurance solution.
As part of the MoU signed by the two bodies, the Sri Lanka Medical Association (SLMA) and Sri Lanka Insurance will collaborate to facilitate educational programs to raise awareness on road accident, conduct media seminars and social media programs in collaboration with Sri Lanka Insurance Motor Plus to create a safe and healthy environment for all Sri Lankans.
The Sri Lanka Medical Association (SLMA) is the national professional medical association in Sri Lanka, which brings together medical practitioners of all grades and all branches of medicine. The SLMA is the oldest professional medical association in Asia and Australasia with a proud history that dates back to 1887. Comprised with around 4000 members, SLMA serves as the leading body of the medical community to achieve the highest standards of medical professionalism and ethical conduct in Sri Lanka and the Association aims to provide a forum for its members to further their professional and academic development.
Sampath Bank to expand its lending activities as economy rebounds
Samath Bank’s adequate capital buffer may enable it to sail through the tough times and help in boosting the credit growth in the near term when the economic activity recovers to a greater extent, First Capital Research said yesterday.
Elaborating on Sampath Bank’s capital buffer in a report titled, ‘Robust show despite nagging macro pressures’, First Capital said, ” Sampath Bank’s earnings increased by 83% YoY in the 2Q2021 to LKR 2.4bn while the surge was attributed to the rise in total operating income by 38.4% to LKR 14.7 bn despite the increase in impairment by 50.1%YoY to LKR 4.3 bn.”
“Total operating income was led by the improvement in NII, Net Fee and Commission and Net Other Operating Income. Considering the strong performance in 1Q and 2Q of 2021, we maintain the earnings forecast of Sampath for 2021 at LKR 13.7bn (+62%YoY) and 2022 at LKR 16.5bn (21%YoY). With the strong capital buffer, we expect Sampath’s lending portfolio to grow with the gradual resumption of economic activities while margins to enhance amidst the potential rise in interest rates.”
The report further said: “However, taking into consideration the higher risk-free rate applicable for valuations, with the potential rise in interest rates, we have downgraded Sampath’s fair value for 2021 to LKR 62.0 (from previous LKR 68.0) and 2022 to LKR 73.0 (from previous LKR 80.0).”
“Sampath’s’s net interest income for 2Q2021 was LKR 10.9bn reflecting an increase of 34.1%YoY, led by the decrease recorded in interest expenses as a result of timely re-pricing of liability products despite a decline in interest income by 0.5%YoY owing to low interest rate regime. Net fee and commission income comprises of income from various sources such as credit cards, trade, and electronic channels while the growth in this segment was driven mainly by higher engagements in card-related activities.”
“Net other operating income grew by 173.8%YoY backed by the increase in realized exchange income stemming from the 1.1% depreciation of the LKR against the USD reported during 2Q2021. We estimate NII and Net fee and commission income to grow by 12%YoY and 10%YoY to LKR 41.3bn and to LKR 9.9bn for 2021 respectively.”
“Impairment rose by 50.1%YoY for 2Q2021 as a result of prudent provisioning for risk categories. Credit granted for 1H2021 amounted to LKR 30.0bn with 4.1%YTD growth mainly driven by term loans, pawning & gold loans and overdrafts although loan book growth was relatively lesser compared to the private sector credit (which grew by nearly 6.7% during 1H2021) as a result of Sampath’s conservative nature in lending. Sampath provided LKR 4.3Bn in 2Q2021 as the impairment, up by 50%YoY, relative to 2Q2020 on the back of additional provisions taken despite signs of an economic recovery apparent in 1Q202.”
“Following a reassessment of the impairment assumptions, SAMP decided to apply a more prudent approach in 2Q2021, in light of the evolving impact of COVID 19 third wave and the extension of the moratorium framework. Accordingly, we have estimated an impairment of LKR 11.6bn (-12%YoY) for 2021 and LKR
10.0Bn (-14%YoY) for 2022.”
Well above capital ratios will boost lending portfolio when the economic activities improve
As at 30th Jun 2021, SAMP’s Tier I and Total Capital Adequacy Ratios stand at 12.5% and 15.7% respectively which are well above the minimum regulatory requirement of 8.0% and 12.0%,” First Capital said.
Tea exports in first seven months of 2021 amounts to Rs.23 billion
By Steve A. Morrell
The Tea Exporters Association ( TEA), indicated in their market report last week that tea exports to end July 2021 amounted to Rs. 23. 02 billion. However, the report further indicates that it showed a decrease of Rs. 1.03 billion compared with the corresponding period in 2020 which was Rs. 24.33 billion.
Forbes and Walker Tea Brokers, (FW) and John Keels Tea (JKH) report as well confirmed these findings and further said Iraq emerged the no 1 importer of Ceylon Tea.
Additionally, Turkey, Russia, and the UAE were recorded in the top category of countries importing Ceylon Tea. China, Iran, Azerbaijan, and Libya were listed in this list. Saudi Arabia and Chile were also in the major buyer list, but recorded statistics were that these latter countries reduced their buying. Reasons for this were not known at the time of writing.
Meanwhile, reduced exports to the US was reported due to the Covid pandemic still affecting the country.
Tea consumption is expected to be dominant in Asian Countries particularly India and China, consuming some 55 percent of global demand. Of importance was also the weak market outlook from European countries following economic downturn. In this instance however, the TEA report said tea consumption in these countries would not be affected. Sources also informed us that after water, tea was the most consumed beverage worldwide.
Expectations were that Sri Lankan tea production was likely to recover in 2021, however production recorded in 2010 and 2015 would not be achieved, ( Production at that time exceeded 300 million kilos)
In Consequence to the fertilizer debacle, reports from planting areas were that production is gravely affected. Clearly, yellowing of foliage resulted in reduced bulk crop . Repercussions were that before the year was out crop shortage would reach alarming levels. Such results were also applicable to the tea smallholder sector. Tea Factory Owners Association, was not available for comment in this regard.
The FW report further said tea exports also included tea bags, instant tea, green tea, tea packets and sundry value added teas. green tea, instant tea, and bulk tea exports were in the plus variance category. Tea bags showed decline in production.
However, the FW report further said offerings show that 6.2 million kilos would be auctioned next week.
Last week’s auctioned quantity was 6.3 million kilos.
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