Monetary Board orders fast tracking of on-site examination report of primary dealers

Saturday, 15 October 2016 00:00 - - {{hitsCtrl.values.hits}}

Officials at special meeting “concerned” over “sharp disparity” in primary dealer performance and some trading activity patterns

The Monetary Board yesterday ordered on-site examination reports of primary dealers to be fast tracked after a special meeting to evaluate their financial performance, the Central Bank said in a statement.

“The Monetary Board, at its special meeting held on Friday considered an interim report on the operations of primary dealers, including their financial performance during the year ended 31 March, 2016 as well as the five month period ended 31 August 2016,” the statement said.

“It noted with concern the sharp disparity in the performance of primary dealers, as well as certain issues related to the pattern of trading activities. In this connection, the Monetary Board instructed expeditious completion of the ongoing process of preparation of the relevant On-Site Examination Reports. This would enable the Monetary Board to make an early determination on the future course of action,” it added. The special meeting was scheduled on a decision made at the previous Monetary Board meeting on 3 October. Days later a draft of the on-site examination report on Perpetual Treasuries was leaked by an unidentified Central Bank employee that indicated actual profits of primary dealer Perpetual Treasuries could in fact have been twice what was declared, triggering fresh public criticism.

Primary Dealer Perpetual Treasuries Ltd., which figured in the controversial bond trading that triggered an uproar in financial markets and political circles, reported a staggering after tax profit of Rs. 5.1 billion, up by over 400% in the financial year ended 31 March 2016.

As per published accounts, the company had reported net interest income of Rs. 354 million against Rs. 106 million in FY15.

However, it has enjoyed capital gains of Rs. 5.2 billion from bond trading during the year, up by 580% from a year earlier. The company, like many primary dealers, enjoys tax-free status.

Perpetual Treasuries had connections to former Central Bank Governor Arjuna Mahendran with its Director being his son-in-law.

Last year both the Governor and Perpetual came under fire for conflicts of interest as well as alleged irregularities in a bond issue and subsequent trading of same. The parties concerned have denied any wrongdoing although the parliamentary Committee on Public Enterprise (COPE) has extensively probed the matter and found lapses. The COPE report is expected to be released in the next two weeks.

Perpetual’s assets as at 31 March 2016 stood at Rs. 11.84 billion, up from Rs. 7.8 billion a year earlier. Capital and Reserves increased from Rs. 1.06 billion to Rs. 6.1 billion, inclusive of Rs. 4.98 billion in retained earnings. Liabilities were down to Rs. 5.68 billion from Rs. 6.8 billion in FY15.