Economic Capsule - November 2017

Economic CapsuleNovember 2017

251st Issue

Research & Development Unit

C O N T E N T S

ECONOMIC & BUSINESS NEWS

Budget 2018

S&P revises Sri Lanka Outlook to Stable from Negative; ‘B+/B’ ratings affirmed

Business confidence crawls up in October

ADB extends USD 350mn to boost roads, energy

Colombo District Land Prices up 12.6% in First Half of 2017

FDIs to double to USD 1.5bn by end-2017: BOI

The Orion City Towers are declared open for bookings

INTERNATIONAL NEWS

“Rising debt and low interest posing greatest market risks” –IMF Dep. Managing Director

Euro zone to grow fastest in decade in 2017, to slow slightly in 2018, 2019

Aussie Housing Market is Four Times the Size of Economy

BANKING SECTOR

CBC Results as of 30.09.2017

Commercial Bank wins dual honours at International Finance awards

Commercial Bank - Branch Openings

Commercial Bank commissions landmark 700th ATM in Sri Lanka

https://www.combank.net/newweb/en/news/8-news-and-events/posts/781-combank-adjudged-most-responsible-bank-sri-lanka-by-capital-finance-international

Condominium Industry in Sri Lanka

October, 2014


Banking Sector

Commercial Bank Results as of 30.09.2017

< Research & Development Unit >

Profit after TaxLoans and Receivables to other Customers Due to other Customers

Cont…


Assets Gross NPA

Commercial Bank Results as of 30.09.2017 (cont…)

Commercial Bank wins dual honours at International Finance awards


Commercial Bank has been adjudged ‘Best Green Bank’ and ‘Best Private Bank’ in Sri Lanka by International Finance Magazine (IFM) of the UK, which is read in over 185 countries worldwide.

• The Best Green Bank award recognises the catalytic role Commercial Bank has played in promoting environmental sustainability through its lending for renewable energy projects and other initiatives that help reduce the environmental footprint of its clients, as well as the Bank’s own efforts to make its operations eco-friendly.

• Best Private Bank award is presented to the banks which have introduced innovative banking products and offer a wide range of services to its customers, regardless of size, public or private status.

Commercial Bank commissions landmark 700th ATM in Sri Lanka


The automated teller machine (ATM) network of the Commercial Bank of Ceylon achieved a milestone with the commissioning of its 700th ATM terminal at MAS Intimates Vidiyal in Kilinochchi.

Commercial Bank - Branch Openings

257th – Katana (23/11/17)

258th – Rabukkana (30/11/17)

259th – Yatiyanthota (7/12/17)


October, 2014


Economy & Business

Budget 2018


Revenue Proposals 2018

The budget as a whole has been designed with the intention of gathering tax revenue of Rs. 110 Bn.

22% of the revenue is expected from taxes on motor vehicles by way of excise duty and luxury tax.

Revisions to VAT and NBT are expected to contribute another 22%.

34% of total revenue is expected from four new taxes i.e. Cellular Tower Levy, SMS Advertising Levy, Debt Repayment Levy and Carbon Tax.

Cont…

Budget 2018 (cont…)


Some of the key budget proposals and their implications are analyzed below. However, it should be noted that this analysis has been based on information that is currently available. It is important to be constantly on the lookout for subsequent amendments that may be effected in relation to the budget proposals.

• Environmentally friendly proposals: With a view to inducing people to switch from petrol/diesel vehicles to environmentally friendly electric vehicles excise duties applicable on all electric vehicles including three wheelers and buses have been lowered while duties applicable on petrol/diesel vehicles have been revised upward.

• This proposal is supplemented with incentivizing the use of ‘off grid solar power’ for establishing electric car charging stations and also for agro processing, poultry and the hotel industry. Perhaps the incentive for ‘off grid solar power’ should also be extend to households with a view to encouraging motor vehicle users to switch from fuel based to electric vehicles. The minimal cost of charging electric vehicles at their homes, at their convenience would inspire the vehicle users for the switch. Additionally, these measures will help in realizing the Government’s vision of total elimination of petrol/diesel vehicles by 2040 and conversion of all Government vehicles to hybrid or electric by 2025.

Cont…



• Removal of VAT exemption on sale of condominium housing units: The sale of condominium housing units which were made exempt from 01 November 2016 has been made liable again after the lapse of a year. This will pose several challenges to apartment developers who had gone through a significant change from a liable regime to an exempt regime (in November 2016) and they would now have to revert back to a liable regime from 01 April 2018.

• Removal of para-tariffs: Proposed to remove 1,200 para-tariffs (within a time frame of 3 years) on import items that at present do not carry any customs duties. Moreover, CESS will also be removed from 253 items to facilitate emerging sectors such as tourism and value adding industries. This is in line with efforts to liberalize trade, reduce border inefficiencies, and capitalize on Sri Lanka’s locational advantages as a trading hub. Cont…



• Enabling 100% foreign ownership in shipping and freight forwarding: Currently foreign ownership in companies engaged in shipping agency business and freight forwarding agencies is limited to 40%. This restriction is proposed to be lifted, enabling 100% foreign ownership.

• By enabling 100% foreign ownership, the government is anticipating them to bring in investments, create more jobs and generate more cargo volume.

• However, some analysts have questioned the benefit of this proposal. They have pointed out that there are currently in excess of 750 local shipping and freight forwarding and clearing agents employing over 12,000 direct staff most (indirectly-linked staff would be much higher) of whose jobs would be at risk as would the enterprises themselves.

• Further, these analysts have also questioned the validity of the contention that the shipping lines and logistics operators will base their operations in Sri Lanka as a result of implementing this budget proposal due to the fact that currently there is no restriction on shipping lines or logistics operators setting up their 100%-owned headquarters or regional offices in Sri Lanka. Cont…



• Debt repayment levy: This levy will be imposed on all transactions entered in to by a commercial bank. It is expected that the revenue collected from this levy will be utilized for the repayment of the government debts. The rate of tax is Rs.2/- per transaction worth Rs.10,000/- (i.e. 0.02%). The levy should be paid by the financial institutions according to the budget speech.

‘Repetitions’: The Budget Speech also contains ‘repetitions’ of certain proposals that were presented in previous budgets, such as listed companies with foreign shareholders being permitted to acquire freehold title, removal of restriction on foreigners acquiring condominium properties below the 4th floor and the VAT refund scheme for tourists.The Debt Repayment Levy of 0.02 per cent applicable on all transactions entered in to by a commercial bank is also akin to the “Financial Transaction Levy” proposed in the Budget 2017, but was not legislated.

S&P revises Sri Lanka Outlook to Stable from Negative; ‘B+/B’ ratings affirmed


S&P Global Ratings revised its outlook on Sri Lanka to Stable from Negative. At the same time, it affirmed its ‘B+’ long-term and ‘B’ short-term sovereign credit ratings on Sri Lanka.

The Sri Lankan Government has maintained its reform momentum, as shown by the passage of the Inland Revenue Act.

Expects the Government to implement additional measures to smooth the approaching debt redemption spike in 2019.

The Stable Outlook reflects the expectation that the Government will maintain the reform momentum over the next 12 months and smooth the upcoming surge in debt redemptions, particularly in 2019

According to S&P

Business confidence crawls up in October


• The LMD-Nielsen Business Confidence Index (BCI) has recovered marginally following its crash in the previous month to reach 106 basis points in October, the latest edition of business magazine LMD reports.

• The BCI recovered from its crash to 99 basis points in the previous month to record 106 in October. Nevertheless, the index remains well below both its 12 month and all-time averages of 120 and 130 respectively – and a year ago, it was as high as 165.

• Nielsen’s Managing Director cautions in LMD that “large-scale concerns on the economy and business climate still persist.”

• “While Vision 2025 has been welcomed by stakeholders, business leaders and consumers are looking for more on the ground and immediate action to rebuild lost confidence.” he said.

Source: LMD

ADB extends USD 350mn to boost roads, energy


The Ministry of Finance and Mass Media has entered into two loan agreements with Asian Development Bank (ADB) to borrow USD150mn for the development of roadways and USD 200mn for the implementation of a 100 MW Wind Power Generation Project in Mannar Island.

• Under the first phase, 3,108 km of rural access roads and 248km of national roads in Southern, Central, Sabaragamuwa, North Western, North Central Provinces and Kalutara District in Western Province are being improved and maintained.

• The total investment cost of the first tranche of this project is USD 172.1mn. ADB provides USD 150mn and the Government Contribution will be USD 22.1mn.

Cont..


• Implementation of the Wind Power Generation Project will support the Government’s objective of achieving 20% of the total power generation through non-conventional power generation by 2020 by enhancing clean power generation.

• The total investment cost of this project is USD 256.7mn of which USD 200mn will be provided by ADB as a direct loan to CEB under a Treasury Guarantee. The balance USD 56.7mn will be financed by CEB.

ADB extends USD 350mn to boost roads, energy (cont..)

Source: Daily FT

Colombo District land prices up 12.6% in 1H, 2017

Source: CBSL < Research & Development Unit >

Colombo district *Land Price Index (LPI), compiled by the CBSL recorded an increase of 12.6% (yoy) for the period ending June 2017. All three sub-indices of LPI (Residential, Commercial and Industrial) contributed to this increase.

*In the compilation of the LPI, CBSL uses the land price data collected by the Valuation Department of Sri Lanka covering around 50 centers of five Divisional Secretariat (DS) divisions (Colombo,Dehiwala,Homagama,Kaduwela and Kesbewa) in the Colombo District.

In view of the diverse nature of the land use and to maintain homogeneity, three indices for residential, commercial and industrial lands are computed separately.

The overall LPI is computed by taking the average of these three sub-indices.

FDIs to double to USD 1.5bn by end-2017: BOI


• According to BOI Chairman , the total FDIs for 2017 (year-to-date) amount to USD 1bn and will reach USD 1.5bn by the end of this year with a few projects in the pipeline.

• Outlining the FDI trends in 2017, he noted that vigorous investment facilitation, ironing out various bottlenecks that hampered the realization of investments, the withdrawal of land lease tax and the introduction of online submission of FDI survey were key reasons for the increased investments.

The Board of Investment (BOI) revealed Foreign Direct Investments (FDIs) in 2017 would double to USD 1.5bn from last year whilst expressing confidence of a USD 5bn figure by 2020.

The Orion City Towers are declared open for bookings


The Orion City Towers complex is now open for bookings, according to Orion City CEO JeevanGnanam. The building is part of the master plan of the Orion City IT Park- Sri Lanka’s largest one-stop hub for innovation and collaboration.

• Orion City Towers complex is located at Baseline Road, Colombo 09 with total rentable area of 350,000 square feet, with 22 floors.

• The completed Orion City Towers will also include an executive club with a business center, lounge areas, meeting venues and private dining facilities.

• The Executive Lounge at the top-most floor hosts a fully equipped gymnasium, meeting facilities and an exclusive rooftop terrace garden. The complex will also include a boutique hotel with B&B, ideal for hosting corporate visitors.


October, 2014


International

“Rising debt and low interest posing greatest market risks” –IMF Dep. Managing Director


• The prolonged period of low central bank interest rates and rising debt in developed economies poses the greatest risk to financial markets in the medium-term, according to an IMF executive.

• "In financial markets, there are risks that come from having low interest rates for a very long time," he said. That's affecting risk-taking behavior - it's affecting the market risk that capital market participants have” according to David Lipton the IMF’s first deputy managing director.

• "We are seeing some greater leverage in the corporate world, in some countries for households, so that rising indebtedness and that increase in market risk really is something that policymakers should keep an eye on”.

According to the Bank for International Settlements, global corporate and household debt reached 138% as a share of GDP in 2016, compared to 115% in 2007, before the start of the economic downturn. The 2016 figure for advanced economies was 195%.

Euro zone to grow fastest in decade in 2017, to slow slightly in 2018, 2019


•The euro zone economy will grow at its fastest pace in a decade this year, according to the European Commission forecast, sharply increasing its projections from earlier this year, but the expansion will slow somewhat next year and in 2019.

Source Reuters

In its regular forecasts for all European Union economies, the Commission said the economy of the 19 countries sharing the euro would grow 2.2% this year, up from 1.8% in 2016.

•The European economy has performed significantly better than expected this year, propelled by resilient private consumption, stronger growth around the world, and falling unemployment.

Aussie Housing Market is Four Times the Size of Economy

Source : Bloomberg


• Australia’s housing market dwarfs its economy after five years of red-hot price growth. The value of the nation’s homes has ballooned to AUD 7.3tn (USD 5.6tn) - or more than four times gross domestic product.

• Not even the U.S. and U.K. markets achieved such heights at their peaks a decade ago before prices spiraled lower and dragged their economies with them.

• “The risk is that it leaves the Australian economy extremely exposed, and a minor shock could become far more significant,” said Daniel Blake, an economist at Morgan Stanley in Sydney.

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.


Economy & Finance

Economic Capsule - November 2017