Economic Capsule - July 2016

Economic CapsuleJuly 2016

Research & Development Unit

235th Issue

C O N T E N T S

BANKING AND FINANCE Commercial Bank ranked among World’s Top 1000 Banks for 6th successive year Commercial Bank enhances customer convenience with ‘Over the Air PIN’ for credit & debit cards Commercial Bank goes for a debenture issue

ECONOMY & BUSINESS

Provincial Gross Domestic Product – 2015 Central Bank raises policy rate by 50 bps Sri Lanka goes for its first dual-tranche bond issue External sector performance – May 2016 Sri Lanka: Development Vision by the new Central Bank Governor Central Bank releases summary trading statistics on Government Securities Secondary market information BOI and EDB partnership Colombo Port opens its new warehouse Hayleys Advantis unveils ‘Venus’ UK interest rates cut to 0.25% Chinese trade drop adds to global economic woes

Condominium Industry in Sri Lanka

October, 2014


Banking & Finance

4< Research & Development Unit >

Commercial Bank ranked among World’s Top 1000 Banks for 6th successive year

The Commercial Bank of Ceylon PLC has become the only Sri Lankan bank to be ranked among the Top 1000 Banks of the World for the sixth year running, setting yet another benchmark for consistency.

• The Top 1000 Banks of the World are ranked on the basis of Tier I capital, assets, capital assets ratio, pre-tax profits, return on capital, return on assets, BIS (Basel) Capital ratio, NPL to total loans, loans to assets ratio, risk weighted assets (RWA) to total assets (TA) ratio and cost income ratio.

• This prestigious ranking is published annually by ‘The Banker’ magazine of the UK, and the 2016 list is based on the Bank’s key performance indicators for FY 2015.


Commercial Bank enhances customer convenience with ‘Over the Air PIN’ for credit & debit cards

• Commercial Bank completed the upgrade of its automated teller machine network in Sri Lanka to EMV Chip capability, significantly enhancing security against fraud by conforming to the EMV standards of the various card brands that are accepted by the Bank’s ATMs.

• Also known as ‘chip cards,’ these smart cards make cloning infeasible, thereby significantly increasing the security level of the card when transacting. When ATM networks of banks become wholly smart card enabled, it becomes impossible for fraudsters to perform fraudulent transactions through cloned cards.


Commercial Bank to go for a debenture issue

Further, Fitch Ratings has assigned Commercial Bank of Ceylon PLC's (CB; AA(lka)/Stable) proposed subordinated debentures a National Long-Term Rating of 'AA-(lka)(EXP)'. The debentures, which are to have tenors of 5 and 10 years and carry fixed and floating coupons, are to be listed on the Colombo Stock Exchange. Commercial Bank expects to use the proceeds to reduce asset and liability maturity mismatches, and improving its Tier II capital base.

Commercial Bank has decided to issue listed, unsecured rated redeemable subordinated debentures for Rs. 5 billion with an option to go up to Rs. 7 billion subject to necessary regulatory approvals and upon other conditions acceptable to the Bank.


October, 2014


Economy & Business


Provincial Gross Domestic Product – 2015Nominal Gross Domestic Product by Provinces - 2014 and 2015

Share of PGDP in the overall GDP

As in previous years, Western province provided the highest contribution to GDP in 2015. However, in line with recent trends, its share in the GDP declined to 41.2 % in 2015 from 41.7 % in 2014, contributing gradually to reduce regional disparities.

Cont…


Provincial Gross Domestic Product – 2015 (cont…) Provincial GDP Growth Rates Per Capita Income Ratio by province

The North Central and Northern provinces recorded the highest growth rate of 12.1 %, in nominal terms in 2015.

The per capita income of the Western province was 1.4 times the national per capita income in 2015. However, per capita income ratio in the Western province declined marginally over the period of 2014 to 2015.

Source: CBSL


Central Bank raises policy rate by 50 bps

• Sri Lanka's central bank raised its main interest rates by 50 basis points each on 28 July in a surprise move aimed at curbing high credit growth that is adding to concern about inflationary pressures.

• The Central Bank of Sri Lanka raised the standing deposit facility rate (SDFR) and the standing lending facility rate (SLFR) to 7.00 % and 8.50 %, respectively.

Previous w.e.f. 28.07.16

SDFR 6.50 7.00SLFR 8.00 8.50


Sri Lanka goes for its first dual-tranche bond issue

The Central Bank of Sri Lanka issued USD 500 mn 5.5-year and USD 1 bn 10-year International Sovereign Bonds on July 11th, 2016. This marks Sri Lanka’s 10th US Dollar bond issuance and the first dual-tranche offering.


External sector performance – May 2016

CategoryJan- May

15’US$ mn

Jan-May 16’

US$ mnChange

(%)

Exports 4,480.3 4,210.9 (6.0)

Textiles and garments 1,981.0 2,084.5 5.2

Tea 561.0 496.5 (11.5)

Imports 7,868.0 7,645.2 (2.8)

Vehicles 477.9 362.4 (24.2)

Fuel 1,186.0 873.6 (26.3)

Trade Balance (surplus(+)/deficit(-)) -3,387.7 -3,434.3 -1.4

Earnings from Tourism 1,184.4 1,402.5 18.4

Workers’ Remittances 2,803.1 2,968.6 5.9

Inflows to the CSE (Net) (c) 58.2 -37.3 -164.1

Foreign Direct Investment (e) 346.4 164.5 -52.5

(c) Includes secondary and primary market transactions

(e) Data available for the first three months of each period and includes foreign loans to Direct Investment Enterprises as recorded by the Board of Investment of Sri Lanka.

• The trade deficit in the month of May widened on account of the decline in export earnings, mainly due to the subdued performance in exports of tea, rubber products and textiles and garments, amidst the marginal growth in import expenditure on a year-on-year basis.

• However, the widening of the trade deficit on a cumulative basis as of end May 2016 was offset to some extent by continuous inflows on account of tourism, increased workers’ remittances and moderate inflows to the financial account during the period.

Cont…


External sector performance – May 2016 (cont…)

• BOP: During the first five months of 2016, the overall BOP is estimated to have recorded a deficit of USD 1,142.3 mn in comparison to a deficit of USD 1,307.4 mn recorded during the corresponding period in 2015.

• GOR: The GOR position is estimated to have improved significantly with the Sovereign Bond of USD 1.5 bn and the syndicated loan of USD 300 mn issued in early July. GOR amounted to USD 6.4 bn as at end July 2016.

Source: CBSL


Sri Lanka: Development Vision by the new Central Bank Governor

Fiscal consolidation, which is already underway, needs to be continued;Enhancing revenue mobilization, rationalizing government expenditure, implementing prudent debt management policies and restructuring state owned enterprises.

Trade policy and trade facilitation need to be strengthened to increase exports and reduce transaction costs for imports;Diversifying the export base and export markets, promoting global integration by strengthening bilateral and regional trade and investment relations, enhancing trade facilitation - easy documentation, single window system, export finance, guarantees, and insurance, further rationalization of trade and tariff policies.Dr Indrajit Coomaraswamy

Governor Central Bank of Sri Lanka

Cont…


Sri Lanka: Development Vision by the new Central Bank Governor (cont…)

Investment climate needs to be enhanced to attract the FDI and portfolio investment;Need of attracting targeted investments, review of the investment laws, one stop shop at the BOI, improving Doing Business Index

Challenges in the labour market also need to be addressed;With emphasis on enhancing productivity and changing population dynamics - key challenge is to change incentive structure to move human resources from lower to higher productivity sectors. Bridging the gap between tertiary education and industry expectations; industry in higher productivity areas complain of labour scarcity.

Cont…


Sri Lanka: Development Vision by the new Central Bank Governor (cont…)

Financial deepening is necessary, but stability of the financial system needs to be ensured Promoting financial inclusion, Looking for cutting-edge technological solutions from the globe in order to have efficient and cost-effective transactions, Strengthening Macro prudential policies, Enhancing the supervision of the financial institutions.

Achieving regional balance in the development process;Western Region Megapolis Plan, Hambantota (China), Master Plan for Trincomalee (Singapore), Master Plan for Kandy (Japan), Wayamba development and creating Industrial, agricultural and fisheries zones.

Source: Presentation by Dr Indrajit Coomaraswamy at the Sri Lanka Economic Summit 2016


Central Bank releases summary trading statistics on government securities secondary market information

Further, all primary dealers will report all outright sales of government securities of value in excess of Rs. 50 mn to investors to this platform within 30 minutes of each transaction.

Accordingly, the Central Bank will monitor these transactions on an on-going basis and summary of trading information consisting of yield rates and volume by each series of securities traded will be published in the Central Bank website in the format as shown.

The Central Bank has commenced releasing summary trading statistics on actual trading of government securities in the secondary market. From August 1, 2016, all primary dealers have been required to undertake inter-primary dealer trades in the trading platform arranged by the Central Bank through the Bloomberg.

Source: CBSL


BOI and EDB partnershipThere have been recent talks between the BOI and EDB, to explore areas of co-operation between the two key economic agencies. Both institutions now come under the Ministry of Development strategies and International Trade headed by Minister Hon. Malik Samarawickrama.

The new emphasis is on Manufacturing.Areas of cooperation between the two economic agencies Boat and yacht building

− Sri Lanka Boat Show at the World Economic Forum− Infrastructure around Yacht Building to be developed− Build several marinas to make Sri Lanka a yachting destination

Automobile components manufacturing Build up pharmaceutical manufacturing capacity Approach leading research institutions in Sri Lanka with the view of developing value added

products particularly in areas such as tea, rice and other foods products.


Colombo Port opens its new warehouse

• Advantis Free Zone (AFZ) recently launched their second and brand new international distribution centre ‘Venus’, one of the most sophisticated international distribution centres to be established in the country to date.

• The facility which caters to all green channel free zone operations with absolute convenience, is the largest facility of its kind in Sri Lanka, with Ground +7 high racking capabilities.

Hayleys Advantis unveils ‘Venus’

• Sri Lanka Ports Authority extending the warehouse facilities of the ports, declared open the newly built CFS 01 warehouse in the Port of Colombo on 10th August.

• The new warehouse, 5,400 square meters large in extent was built focusing on the container missions, and the reshipment missions in the Colombo port.


October, 2014


International


UK interest rates cut to 0.25%

• UK interest rates have been cut from 0.5% to 0.25% - a record low and the first cut since 2009.

• The Bank of England has also signalled that rates could go lower if the economy worsens.

• The Bank announced additional measures to stimulate the UK economy, including a £100bn scheme to force banks to pass on the low interest rate to households and businesses.


Chinese trade drop adds to global economic woes

• Chinese exports have seen a further decline in July, adding to concerns over the global economic outlook.

• Exports fell by 4.4% compared to a year earlier, which was a slight improvement over June's 4.8% drop but still worse than what analysts had been expecting. Imports were also weaker than estimated, down by 12.5%.

• As China is a crucial driver of the worldwide economy, the data is seen as a snapshot of the global outlook. The country's exports have fallen for 12 out of the past 13 months.

• Global uncertainty ranging from low commodity prices to the EU debt crisis and the UK leaving the bloc continues to mute economic activity around the world.

The views expressed in Economic Capsule are not necessarily those of the Management of Commercial Bank of Ceylon PLC

The information contained in this presentation has been drawn from sources that we believe to be reliable. However, while we have taken reasonable care to maintain accuracy/completeness of the information, it should be noted that Commercial Bank of Ceylon PLC and/or its employees should not be held responsible, for providing the information or for losses or damages, financial or otherwise, suffered in consequence of using such information for whatever purpose. < Research & Development Unit >

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Economy & Finance

Economic Capsule - July 2016