Confidential Central Bank Document On An On-Site Examination Of Perpetual Treasuries Limited Leaked
October 5, 2016
A highly confidential document by the Department for the Supervision for Non-Bank Financial Institutions of the Central Bank has been leaked, with the report highlighting serious concerns against the manner in which the controversial Perpetual Treasuries Limited (PTL) had conducted itself, while also benefiting vastly in terms of borrowing billions of rupees under extremely low interest rates during the tenure of Arjuna Mahendranas the Central Bank Governor.
Arjuna Mahendran
The 25 page report in the possession of Colombo Telegraph is addressed to the Monetary Board based on the findings of the on-site examination of PTL which was conducted by the Public Debt Department.
The onsite investigation conducted during the periods of 24th to 26th November 2015, 26th to 28th July 2016 and 4th to 8th August 2016 has highlighted several concerns with regard to the company, which initially had direct links to Arjun Aloysius, the son in law of Mahendran.
In the findings submitted to the Monetary Board, the department raised several concerns including the company’s failure to record the customer information in the Lanka Secure System promptly and accurately; Failure to enter into Master Repurchase/Reverse Repurchase Agreements with customers, although by May 2016 PTL had already signed 172 MRAs and 132 customer agreements.
Another crucial concern highlighted in the document following the on-site inquiry was that PTL’s excessive bidding at auctions without adequate funding lines. According to the document, PTL bid a total of Rs. 49.4 billon for T-bond auctions held on March 29, 2016 and March 31, 2016. On April 1, 2016, PTL had to settle Rs. 42 billion to secure the T-bonds accepted at the auctions.
However, PTL did not have sufficient funds amounting to Rs. 36 billion by the settlement date and it had to resort to borrowing a significant portion of it from the Reverse Repo Auction, Intra Day Liquidity Facility and Money Market. “However, as PTL was short of acceptable securities to provide to the Central Bank, it was unable to secure adequate settlement funds. As a result, PTL was subject to a penalty of Rs. 21.3 million,” the document said.
The document also said that PTL had a practice of bidding off-market rates. The document noted that bidding at off market rates in other jurisdictions is not allowed and is also a severely punishable offence.
Despite initially not having the necessary funding, PTL is reported to have made extraordinary capital gains of Rs. 4,652.7 million in April and May 2016 from trading T-bonds purchased from Primary Auctions, the document said.
“These securities were purchased mainly using Central Bank’s liquidity assistance available to market participates (borrowing from Reverse Repo and using ILF. By the memo dates 08.04.2016, Domestic Operations Department has highlighted their observation on the excessive use of re-repo facility by Primary Dealers. As informed by the Domestic Operations Department, from 1st to 8th April from the total borrowed amount of Rs. 89 billion by all PDs, out of which PTL had borrowed Rs. 66 billion (75%),” the document said.
Meanwhile, a highly placed official attached to the Ministry of Finance said that this report that had been leaked appeared to be authentic.
