Clarification

Economist Dr. Amal Sanderatne of Frontier Research referring to the article that appeared on these pages under the heading “Doomsday Soothsayers” last week alleged that since the release of his report averred to in that article, the value of banking stock, upto last Friday had fallen by 5.8%, whereas the benchmark ASPI in the period under review had grown by 12%.
His report had been released after the presentation of Budget 2011 in November.
Sanderatne’s point was that though the Budget reduced the VAT on Financial Services, that difference had to be kept by banks in a separate account for long term lending, instead of being given the opportunity of adding the same immediately to banks’ profits/losses, whilst simultaneously not earning dividends to shareholders.
It’s like, supposing one’s income tax has been reduced, but the Government has said that one can’t lay claim to that difference advantage immediately. Instead that money has to be placed in a separate account and only after a lapse of 10 or 15 years could one lay claim to that money, said Sanderatne.
Business Editor’s Note: Our reporter says: “By the reduction of the Financial Services VAT and corporate tax in Budget 2011, bank reserves gets stronger, thereby the capital adequacy ratio gets stronger as well. The budget is not the only the factor taken into consideration when investors pick up Bank and Financial sector stocks contrary to Sandaratne’s view.  In a stock market there are ups and downs.
It is also important to note that the corporate tax reduction from 35% to 28% was effective only from last week. These reductions will increase Profit after Tax of good corporates and financial institutions as reported last week.”