Sri Lanka. Country Profile

Transcription

1 Sri Lanka Country Profile

2 Contents Country Overview Clearing Systems Foreign Exchange Controls Taxation Investment Opportunities Trade Regulations Citi Solutions and Services

3 Country Overview Banking Holidays in Sri Lanka Tamil Thai Pongal Day January 15 January 15 National Day February 4 February 4 Milad-Un-Nabi February 16 February 5 Navam Full Moon Poya Day February 17 February 7 Maha Shivratri March 2 February 20 Medin Full Moon Poya Day March 19 March 7 Sinhala and Tami New Year s Eve April 13 April 13 (1) Sinhala and Tami New Year s Day April 14 April 14 (1) Bak Full Moon Poya Day April 17 April 1 Good Friday April 22 April 6 May Day May 1 May 1 Vesak Full Moon Poya Day May 10 April 28 Day following Vesak Full Moon Poya Day May 18 April 29 Poson Full Moon Poya Day June 15 June 1 (1) Esala Full Moon Poya Day July 14 July 1 (1) Key Facts Capital City Colombo Population 20,669,000 (2010) Currency Sri Lanka Rupee Currency SWIFT Code LKR Exchange Rate (1) USD/LKR (Jun 2011) GDP USD48.24 billion (2010) GDP Growth Rate 8.6% (Dec 2010) Exports USD7.9 billion (2010 est.) Imports USD11.6 billion (2010 est.) Inflation Rate (1) 8.8% (May 2011) Credit Rating (S&P) B+ (Jun 2011) Source: IMF/CIA World Factbooks. (1) Nikini Full Moon Poya Day August 13 August 1 (1) Eid ul-fitr August 30 August 19 Binara Full Moon Poya Day September 11 September 1 (1) Vap Full Ful Moon Poya Day October 11 October 1 (1) Diwali or Deepavali October 26 November 13 Eid al-adha November 6 October 26 II Ful Moon Poya Day November 10 November 1 (1) Unduvap Full Moon Poya Day December 10 December 1 (1) Christmas Day December 25 December 25 (1) Full Moon Poya Days to be confirmed. Sri Lanka Country Profile 1

4 Country Overview Banking System The banking sector in Sri Lanka, which comprises licensed commercial banks (LCBs) and licensed specialized banks (LSBs), dominates the financial system and accounted for 52 per cent of the total assets of the financial system. As at end of July 2011, the banking sector comprised 22 LCBs and 9 LSBs.In terms of the asset base and the magnitude of services provided, the LCBs are the single most important category of financial institution within the banking sector. And even though a large number of licensed banks exist in the country, the stability of the financial system is primarily dependent on the performance and financial strength of the six largest LCBs, consisting of the two state banks and the four largest domestic private commercial banks. These six banks, which are generally referred to as the Systemically Important Banks (SIBs), represented 76.3 per cent of the LCB sector assets and 64 per cent of the banking sector assets. The LSB sector represented 9 per cent and 16 per cent of the entire financial system s assets and banking sector s assets, respectively. Foreign banks have a limited branch network in Sri Lanka, but have a strong focus on cash management and electronic banking including Enterprise Resource Planning integrations. Citi in Sri Lanka Since its establishment in 1979, Citi in Sri Lanka has led local market innovation in terms of cash management solutions, trade financing, corporate finance, and most recently risk management and hedging. Citi in Sri Lanka is rated AAA by Fitch Ratings Lanka, and has maintained this rating since With over 100 employees, Citi in Sri Lanka also plays a vibrant role in the community. Recently, Citi in Sri Lanka has undertaken Corporate Social Responsibility projects to equip the rural school with Citi s computers and hire teachers to instruct kids. Next step, Citiclub in Sri Lanka Branch will dedicate Global Community Day to raising funds to create and supply a much-needed library. Citi also contributes strongly towards training and development in the financial services sector. Citi in Sri Lanka is the only commercial bank to be ISO9001 certified in 2010 for its entire banking operations processes covering cash, trade, treasury and custody operations. Further Citi is the recipient of numerous awards recognizing its successes in Sri Lanka, including Best Foreign Commercial Bank by Finance Asia (2009, 2010 and 2011), Best Sub-Custodian Bank in Sri Lanka by Global Finance (2011), Best International Trade Bank in Sri Lanka by Trade Finance (2010 and 2011) and Best Corporate/Institutional Internet Bank in Sri Lanka by Global Finance (2010). Head Office Address 65C Dharmapala Mawatha Colombo 7 Sri Lanka Location of Branches Colombo 2 Sri Lanka Country Profile

5 Clearing Systems Sri Lanka has a fully automated national clearing system known as the Sri Lanka Automated Clearing House (SLACH), which is regulated by the Central Bank of Sri Lanka. Currently there are 27 banks and financial institutions participating in the SLACH. The Cheque Imaging and Truncation System launched in 2006 moved the paper based clearing system to an image based clearing system thus greatly improving the efficiency of the clearing system post which the maximum time taken for a cheque to clear across the island is 1 day. Citi s branch in Colombo is a full member of the clearing system and is a competitive player in local settlements. USD Check Clearing System A local US$ check clearing system was launched in 2002 for drafts and checks drawn in US$ issued by licensed commercial banks and payable to Sri Lankan individuals and institutions. This check clearing system is also applicable to drafts and checks issued by banks/exchange drawn on licensed commercial banks in Sri Lanka. This new system reduced clearing times from 3-4 weeks to about 4 working days. Wire Transfers There are two main electronic fund transfer systems, which are conducted by the Central Bank of Sri Lanka. Sri Lanka Inter-bank Payment System Sri Lanka Inter-bank Payment System (SLIPS) is mainly used for low-value high volume transactions like salaries, dividends and pensions. There are 2 settlement cycles for SLIPS transactions. The first cycle clears the same day and the beneficiary received funds the same day but is limited payments other than employee remuneration settlements. For the second cycle there is a 1 day gap in beneficiaries receiving funds. SLIPS is provided as a relatively cheaper electronic fund transfer solution. Real-Time Gross Settlement System Sri Lanka s Real-Time Gross Settlement (RTGS) system is used for large value critical payments such as interbank payments. Funds Availability Schedule Clearing Stream (CS) Local Currency Electronic Transfers Cycle 1 10:00 AM Value Date Value Date Value Date SLIPS of less than LKR 5,000,000 Cycle 2 3:00 PM Value Date Value Date Value Date+1 Local Currency Other banks RTGS of more than LKR 1,000,000 Local Currency Book-tobook within Citi 10:00 AM Value Date Value Date Value Date 3:00 PM Value Date Value Date Value Date Foreign Currency Transfers 3:00 PM Currency Dependent Value Date Value Date+2 Check Deposit 3:00 PM Value Date+1 Sri Lanka Country Profile 3

6 Foreign Exchange Controls Market Characteristics Sri Lanka has a liquid foreign exchange market with secondary market volumes averaging to USD80 to 100 million a day. Apart from cash tom spot market the FX market is liquid up to 6 months. Currently the market is at a preliminary stage on forwards beyond 6 months. The majority of foreign exchange trading is tied to trade flows, with oil, tea, textiles, essential food sectors. Foreign institutional investors account for the remaining 10% of daily volumes. Given the lack of importer demand and foreign investor flows the USDLKR rate has been stabilized during the last few months with a market perception for the LKR to appreciate against the USD in the coming months. The major market players are Bank of Ceylon, Citi, HSBC, Standard Chartered Bank, and Commercial Bank of Ceylon. Currency Characteristics Limited convertibility: The Sri Lanka Rupee is not a freely convertible currency. With the liberalization of the current account, conversions for current account transactions can be effected in keeping with the guidelines stipulated by CBSL in terms of submitting documentary evidence for current account transactions. However, capital account transactions are still regulated by the Central Bank of Sri Lanka. Managed float: The LKR is market determined, but CBSL keeps a close watch on interest rates and local currency volatility and may intervene when necessary. Direction of LKR: Historically, the average depreciation against the USD has been around 5 6% per annum. However, given the current market conditions and positive investor confidence would attract incremental FCY flows to the country in the coming months. Hence it is expected a LKR appreciation against depreciation in the current year. Local currency is not freely convertible. Supporting documentation is required for all foreign exchange conversions. 4 Sri Lanka Country Profile

7 Taxation Corporate Income Tax The corporate income tax rate is cut to 28% of taxable income from 35% with effect from 1st April, But for the companies with taxable income less than SLR 5 million and venture capital companies are taxed at the rate of 12%. Withholding Tax Dividends: Interest: Royalties: Dividends paid to a non-resident and resident are subject to 10% withholding tax unless the tax is reduced under a tax treaty. Interest paid to a non-resident is subject to a 15% withholding tax unless the tax is reduced under a tax treaty. Interest paid to a resident by banks and financial institutions is subject to the rate of 10%. Royalties paid to a non-resident is subject to a 15% withholding tax unless the tax is reduced under a tax treaty. Branch remittance tax: A 10% branch profit tax is levied on the after tax profits remitted by a branch to its head office. Value-added Tax Value-added tax (VAT) is levied on the sale of goods and services in Sri Lanka at the rate of 12%, with a reduced rate of 5% applying to essential items. Certain supplies are zero-rated or exempt. Tax rate on luxury goods is 20%. Transfer Pricing Arm s length transfer pricing is a must for any inter-company arrangement Sri Lanka Country Profile 5

8 Investment Opportunities Money Market Products Call Deposits in Local and Foreign Currencies Funds placed with a financial institution without a fixed maturity date. The money can be called (withdrawn) at any time upon submission of written instructions. Time Deposits in Local and Foreign Currencies Time Deposits are interest-bearing deposits for fixed amounts in a given currency, at a fixed interest rate (or fixed re-pricing terms), payable at a fixed future date. Sweep Deposits in Local and Foreign Currencies Sweep Deposits are automated deposits via either a Zero Balancing Account (ZBA) or Target Balance structure. Fixed Income Instruments Government Treasury Bills and Bonds Government Treasury Bills, or T-Bills and Bonds are discounted instruments issued by the Department of Public Debt of the Central Bank of Sri Lanka, on behalf of the Government of Sri Lanka to finance the national debt. Sri Lanka Rupee T-Bills are issued to mature in 91, 182 or 364 days. Bond maturities extend beyond 1 year to maximum of 10 years. Repurchased Agreements Repurchased Agreements (Repos) are contracts involving the simultaneous sale and future repurchase of an asset, for our purpose a government security, at a fixed interest rate and for a fixed maturity date. Essentially this is a funding transaction where the price differential, between the sale and future repurchase prices, reflects the interest component associated with the transaction. Reverse Repurchased Agreements Reverse Repurchased Agreements are contracts whereby a party purchases and simultaneously agrees to resell a security (government security), at a date after the purchase date, at a pre-specified price. The price differential represents interest revenue on what is essentially a secured placement. Corporate Debt Instruments Commercial Paper and Promissory Notes A Commercial Paper (CP) is a short-term negotiable money market instrument consisting of an unsecured promissory note with a fixed maturity issued by corporate borrowers having a recognized rating by a wellknown rating agency such as Moody s, Standard & Poor s, Dun & Bradstreet or Duff and Phelps. To enhance the quality of the CP and instil investor confidence, local issuers of CPs sought the support of Licensed Commercial Banks (LCBs) to guarantee or endorse the CPs. The popularity of CPs nowadays can be attributed to the ability to meet the short-term liquidity requirements of corporate entities at lower cost. Furthermore, interest rates offered to investors are higher than that of T-Bills. 6 Sri Lanka Country Profile

9 Investment Opportunities Stock Market The Colombo Stock Exchange (CSE) is a company limited by guarantee, and established under the Companies Act No. 17 of The CSE took over the Stock Market in 1985 from the Colombo Share Brokers Association. It currently has a membership of 15 institutions, all of which are licensed to operate as stockbrokers. The policy making body of the Stock Exchange is its Board of Directors - consisting of nine directors. Out of the nine directors, five of them are elected by the members and the other four are appointed by the Minister of Finance. Currently, the Board has appointed five sub-committees to administer the operations of the Exchange. The Exchange Secretariat, headed by the Director General, is responsible for the operations of the Exchange and is accountable to the Board of Directors. Since it commenced operations the CSE has initiated a number of measures to improve the market s infrastructure and regulatory framework to facilitate an orderly and fair market. Instruments Traded: equities, debentures Market Capitalization: LKR 2, billion (as at December 31, 2010) Companies listed: 241 companies across 20 business sectors (as at December 31, 2010) Sri Lanka Country Profile 7

10 Trade Regulations Trade regulations are under the Department of Imports and exchange control, functioning under the Ministry of Commerce and Consumer Affairs. All trade regulation is under the Imports and Export (Control) Act No. 1 of For more detailed information, please refer to URL of the central bank: Central Bank of Sri Lanka ( and tax authority: Inland Revenue Department ( 8 Sri Lanka Country Profile

11 Citi Solutions and Services Account Services Allowed No Material Restrictions Allowed Subject to a Complex Set of Rules Allowed Straight Forward Regulations, Approval, or License Strictly prohibited Allowed Challenging Regulatory Approval, or License Non-Residents Residents (1) (2) (3) Operating Accounts Onshore Local Currency Onshore Foreign Currency Offshore Local Currency Offshore Foreign Currency Overdrafts Onshore Local Currency (3) Onshore Foreign Currency (1) (2) (3) Interest-Bearing Accounts Onshore Local Currency Operating Accounts Onshore Foreign Currency Operating Accounts Time Deposits Onshore Local Currency Onshore Foreign Currency Domestic Notional Pooling (4) Onshore Local Currency Onshore Foreign Currency Inter-Company Lending (5) (6) Non-Resident to Resident Resident to Non-Resident Local Currency Foreign Currency Non-Residents Residents Local Currency Foreign Currency (Onshore) Sri Lanka Country Profile 9

12 Citi Solutions and Services Central Bank and Other Regulatory Requirements All cross-border payments would also require supporting documents. Other Payment and Clearing Considerations for Treasury Netting of payments between parties is allowed with Central Bank approval and prior documentation submitted before each netting cycle Notes: (1) Current accounts are disallowed from earning interest. Only savings accounts are allowed to earn interest. (2) Bank interest received is subject to withholding tax of 10% for residents and 15% for non-residents. (3) Notional Pooling is allowed for single currency current accounts. Interest is not payable on aggregate credit balances and interest is charged on aggregate debit balances. (4) Inter-company arrangements must exceed arms-length course of business, and any transaction that can be perceived as material should be disclosed with regard to the nature of the related party relationship and type of transaction. 10 Sri Lanka Country Profile

13 Notes Sri Lanka Country Profile 11

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