Capital market calling

 By By Cassandra Mascarenhas

Sri Lankans are entirely too dependent on the banking sector in the country and do not realise the potential of investing in the capital market, which is the key issue facing our economy at the moment stated Dr. Dissa Bandara.

Dr. Bandara – who is the Director of the Financial Services Academy of the Securities and Exchange Commission and a senior lecturer at the University of Sri Jayawardenepura – expressed these views at a lecture held last week at the Centre for Banking Studies, discussing the current situation regarding Sri Lanka’s post war capital market.

Expressing his ideas on future prospects open to the economy, he started off by quoting from President Mahinda Rajapaksa’s speech given at the Victory Day celebrations that “our public service has six times the manpower of the armed forces. They are also our own children born in our own villages. If our public servants make a commitment for four years similar to that made by our heroic forces, we will be able to make this country the Wonder of Asia.”

Dr. Bandara, drawing from this, explained that there was no longer any need to differentiate between the public and private sector and that it is now the turn of the general public to uphold the work of the forces and help build and strengthen our economy.

Highlighting the current situation of the country’s economy, Dr. Bandara used a series of statistics to demonstrate Sri Lanka’s present standing on a global platform.

With decreasing interest rates, unemployment rates and a GDP growth rate of 6.2 at the end of 2009, Sri Lanka is doing well in comparison with Japan, China and India amongst other countries.  Japan has a rate of 4.6, China 1.9, Australia 2.7 and North America and Latin American countries 2 to 3%.

Compared to them, our country is doing well soon after the war. Sri Lanka is also currently in the third place amongst the best performing indices in the world and the Colombo market is also one of the best performing markets globally.

Although the Sri Lankan economy is thriving at the moment, it is now time to think about future prospects and how the current growth and development could be further extended, said the lecturer.

With the end of the war came a very good environment for investors as investor confidence has now been regained. Further account openings could be observed with investor education.

“Investor education programmes were conducted by SEC with university students, general public, employees of large organisations taking part. This information related to some of the attempts taken by the regulators soon after the war in 2009; we conducted more programmes more facilities towards investor education,” shared Bandara.

There is a very promising increase in the trend for opening new accounts and around 30,000 new accounts are expected to be opened by the end of this year alone. Most of the accounts have been opened by locals, surprisingly from the rural community – an unexpected development.

Still, 76% of our investments are currently placed in the banking sector and just 24% in the capital market – an unusual situation if compared with almost any developed country where the capital markets tend to be two to three times the size of their banking sector, with even the banks highly involved in capital market activity.

“I don’t see a single bank in Sri Lanka dealing with capital market activity,” Bandara pointed out. “That’s the key issue we have and it is the turning point for us. The banking sector is too popular here because people are not aware of the advantages and higher returns from dealing with the capital market.

Banks too should take initiative and introduce capital market services”.

He stressed that the focus should now be on attracting people from the banking sector to the capital market instead. The capital market should also be seen as the main source of financing infrastructure development projects in the future.

It is pleasing to note, however, that even with the influx of foreign investments in the country recently, the domestic participation in the capital market have been much larger than foreign participation throughout the post-war era.

A problem currently encountered though is that the benefits of the market is not distributed evenly across the country as when evaluating the situation by comparing it to the country’s total population, less than 1% of the population deals with the capital market which results in just a handful of people gaining from it.

After the war, the ability of listing companies enhanced with around 10 to 15 companies listing in 2010 although official statistics currently name only four. With more listed companies in our market, there will be more shares available for purchase which in turn foreigners could be encouraged to buy.

A problem the market is currently facing is the reluctance of companies to list – the Registrar of Companies details over 39,000 companies registered in Sri Lanka, in spite of these only 235 companies are currently listed in the CSE. In comparison to the Bombay stock exchange which has about 4,900 companies and 2390 in Tokyo, this is not promising for the country and should be amended in the near future.

There has also been a 200% growth in the activities of registered stock broking companies. There are currently 21 brokers in the market and there is a growing demand for opening more brokering companies. The CSE has received 12 applications of which five have been agreed to at the moment.

Sri Lankan brokers are very busy at the moment with market development especially in the north and the east creating more employment opportunities. Branches have already been opened in Jaffna and Vavuniya and have received a good response from the northern region.

“We have opened more branches in rural areas to address the growing needs of the market. The development in the capital market is different from the pre-war situation. Earlier the SEC and the CSE would always say that things could not be done because of war. Now it’s time to open our eyes and think about positive strategies to develop,” Bandara encouraged.

Other post-war initiatives discussed by Dr. Bandara were market expansion in rural areas, market development and awareness creation across the country especially in the north and east, human resources component to double at the earliest thereby creating more employment opportunities, amongst others.


source - www.dailymirror.lk