economic capsule - june 2015

Economic CapsuleJune 2015

Research & Development Unit

222nd Issue

C O N T E N T SBANKING SECTOR NEWS Branch Openings

Commercial Bank begins Myanmar Operations with Opening of Yangon Office

ECONOMIC & BUSINESS NEWS

Sri Lanka GDP Grows 6.4 % in 1Q, 2015

Fitch Ratings on Sri Lanka

Latest Government Borrowings

External Trade Performance Jan – Apr 2015

Vehicle Market – May 2015

Sri Lanka Signs Articles of Agreement for Asian Infrastructure Investment Bank

About AIIB Bank

Sri Lanka Eying Funding from China-led AIIB

News Snippets

INTERNATIONAL NEWS Greek Debt Crisis

China's Banks Dominate Rankings for Profits, Strength

Condominium Industry in Sri Lanka

October, 2014


Banking News

Branch Openings

4< Research & Development Unit >

Katugastota

Wattegama

242

243

Commercial Bank begins Myanmar Operations with Opening of Yangon Office


• The Commercial Bank of Ceylon opened its representative office in Yangon on, 8th June, formally launching its operations in Myanmar, initially to offer Advisory Services to Sri Lankan and Bangladeshi businesses wishing to enter that country, and to arrange Banking and Advisory facilities, funds transfer and encashment services.

• Commercial Bank is the first Sri Lankan bank to be granted a licence by the Central Bank of Myanmar to operate a Representative Office in the country.


October, 2014


Economic & Business News

Sri Lanka GDP Grows 6.4 % in 1Q, 2015


• Sri Lanka's economy grew 6.4 % in the first quarter of this year, led by the services sector which accounts for over half of Gross Domestic Product.

• In the first quarter of 2015 agriculture had recorded a growth of 0.7 % while industries and services had recorded growth rates of 6.5 % and 7.5 % respectively.

% Share

Source: DCS

Fitch Ratings on Sri Lanka


Growth Offsets Political Debility: Sri Lanka’s ‘BB−’/Stable rating reflects high and less volatile real GDP growth compared with peers, and a favourable level of basic human development against persistent political uncertainty, weak public finances and a frail external liquidity position.

Key Developments• Persistent Political Uncertainty• Public finances remain weak: General government revenues continue to

decline, and in Fitch’s view, this trend is likely to continue. The interim budget announced in January 2015 did little to address the underlying weaknesses in the fiscal profile as most of the revenue measures announced were one-off in nature. Cont…

• External liquidity position weak: Sri Lanka’s foreign-reserve coverage of its current external payments remains narrow, and is vulnerable to shifts in investor sentiment. − That is especially true because foreign holdings of Sri Lankan

government securities are high and as domestic political uncertainty currently prevails.

− Lower oil prices, a steady inflow of remittances and tourism receipts are expected to support the current account.

− But wage increases announced in the interim budget and the policy rate cut in April could translate into higher imports and is a risk to the current account that bears monitoring.

Fitch Ratings on Sri Lanka (cont…)

< Research & Development Unit > 9

Cont…


Fitch Ratings on Sri Lanka (cont…)

Latest Government Borrowings


Sri Lanka Development Bonds (SLDBs) (auction held on 25 June 2015)

Amount Accepted (USD mn)(Floating)

1 Y & 10 M 3Y & 7M 5Y

255.00 35.00 37.00

Weighted Average Margin (bps) over 6 month LIBO 340.12 376.43 410.95

Foreign Currency Term Financing Facility (FTFF) (announced on 16 June 2015)Size Up to a limit of USD 500 Mn

Maturity Not less than 3 years

Interest Rates Fixed rate or a floating rate linked to the 6M LIBOR (USD)

Purpose Meeting corresponding import elements of external funded projects specified in the Budget for the fiscal year 2015.

Source: CBSL

Source: Ministry of Finance

External Trade Performance Jan – Apr 2015


Category Jan-Apr 2014 (USD Mn)

Jan-Apr 2015 (USD Mn)

Growth %

Consumer goods 1,044.3 1,567.3 50.1

Food and beverages 446.7 611.8 37.0

Non food consumer goods 597.6 955.5 59.9

Vehicles 196.8 385.0 95.7

Intermediate goods 3,872.6 3,153.0 (18.6)

Fuel 1,761.7 921.7 (47.7)

Investments goods 1,271.1 1,554.9 22.3

Unclassified 4.3 7.3 68.4

Total Imports 6,192.4 6,282.5 1.5

Industrial exports 2,675.7 2,750.06 2.8

Textiles and garments 1,601.6 1,588.10 (0.8)

Agricultural exports 860.8 801.0 (6.9)

Tea 503.8 437.4 (13.2)

Mineral and other 44.2 17.4 (60.5)

Total Exports 3,580.6 3,569.1 (0.3)

Trade Balance

(USD 2,713 mn)Inc. in deficit3.9%

BOP Position

(USD 1,024.7 mn)

GOR

USD 7.5 bn(=4.6 months

of Imports)

Source: CBSLCont…

External Trade Performance – April 2015


• Earnings from exports declined by 7.4 % to USD 708 mn in April 2015, recording the lowest monthly earnings after April 2013.

• The reductions recorded in exports earnings from tea, petroleum products, sea foods, rubber products and textiles and garments, respectively contributed for the drop in exports during the month. Tea - lower demand from Russia and Middle East Petroleum products - around 40 % price reduction and 6.6 % volume drop recorded in bunker

fuel exports Sea Food - 68.3 % decline in sea food exports to the EU market, the main sea food market of

Sri Lanka. Rubber products - low raw rubber prices prevailed in the international market, exports of

rubber products also declined, reflecting a noteworthy decline in the export earnings of rubber tyres

Textiles and garments - reduction in exports to the EU market

Export Performance

Cont…


Import Performance

• Despite the lower expenditure on imports of petroleum products, total import expenditure in April 2015 increased by 3.2 % (to USD 1,490 mn) mainly due to the base effect of lower imports recorded in April 2014.

• The growth in imports was led by personal motor vehicles, followed by machinery and equipment and transport equipment.

• Import expenditure on fuel declined by 32.8 % to USD 213 mn in April 2015, due to non-importation of crude oil during the month and about 38.5 % decline recorded in the international prices of refined petroleum products.

• Higher expenditure on personal vehicle imports, particularly motor cars which increased by more than 90 %, contributed mainly for the increase in imports.

External Trade Performance – April 2015 (cont…)

Vehicle Market – May 2015


• Total vehicle registration momentum in most categories continued in May – cheaper credit, lower cost of running and higher disposable incomes are fuelling demand.

• Brand new cars hit an all-time record – 3,206 units in May up from 2,926 units a month ago and 577 units 12-months ago.

• Maruti accounted for 2,512 units of which Altos were 2,311 up from 2,239 units last month.

• Pre-owned car registrations recorded 2,793 units in May up from 2,190 units a month ago and significantly up from 1,385 units 12 months ago.

• Hybrids accounted for 2,701 units in May up from 2,300 units in April and up from 1,177 units 12 months ago. Electric car volumes exploded recording 360 units in May up from 152 a month ago and 4 units 12 months ago. Nissan Leaf accounted for 356 units. Cont…

Vehicle Market – May 2015 (cont…)


Source: JB Securities

Sri Lanka Signs Articles of Agreement for Asian Infrastructure Investment Bank


• China has hosted the signing ceremony of the Asian Infrastructure Investment Bank (AIIB), a new international financial institution set to rival the World Bank and Asian Development Bank.

• Sri Lanka has signed the articles of agreement for the China led Asian Infrastructure Investment Bank which is expected to be operational by the year end.

• Australia was the first country to sign the articles of association creating the AIIB's legal framework, followed by 49 other members. Seven more countries are due to sign by the end of the year.

• Most Asian countries and countries from the Middle East and Latin America have joined, with the launch of the Beijing-led bank being hailed as a diplomatic and strategic success for China.

• “The Bank’s foundation will be built on international best practices and the lessons and experiences of existing Multilateral Development Banks and the private sector.” the bank said in a statement.

Cont…

About AIIB Bank


• The AIIB, which was created in October 2014 by 21 countries, led by China, will fund Asian energy, transport and infrastructure projects.

• The UK, Germany, Australia and South Korea are among the founding members.

• Japan and the US, which oppose the AIIB, are the most prominent countries not to join.

• The US has questioned the governance standards at the new institution, which it sees as spreading Chinese "soft power", and tried to persuade others to stay away.

• The AIIB will begin with authorised capital of $50bn, eventually to be raised to $100bn.

• China will hold a 30.34% stake making it the largest shareholder of the bank. This would give China 26.06% of the voting rights within the multilateral institution.

• India will be the second-biggest shareholder with a possible 10-15% stake, while Russia and Germany will make up the third and fourth biggest member stakes.

The Beginning…The first news reports about the AIIB appeared in October 2013. The Chinese government has been frustrated with what it regards as the slow pace of reforms and governance, and wants greater input in global established institutions like the IMF, World Bank and Asian Development Bank which it claims are dominated by American, European and Japanese interests.In April 2014, Chinese Premier Li Keqiang delivered a keynote speech at the opening of the Boao Forum for Asia and said that China was ready to intensify consultations with relevant parties in and outside Asia on the preparations for the Asian Infrastructure Investment Bank.

Cont…

Sri Lanka Eying Funding from China-led AIIB


• The newly formed Asian Infrastructure Investment Bank (AIIB), will boost our infrastructure projects with low cost funding, Central Bank Governor Arjuna Mahendran has stated. • “I'm sure we would be one of the first beneficiaries of this bank. We

wish to apply for at least USD one billion project funding for our infrastructure projects. We hope to get those loans at around 2-3% rate”.

News Snippets


Bartleet Finance PLC and Orient Finance PLC amalgamation approved• Amalgamation of Orient Finance PLC with Bartleet Finance PLC had been approved by

shareholders, according to a stock exchange listing by Orient Finance PLC.

John Keells Holdings wraps up US$395 loan• John Keells Holdings has announced that the Group had finalised a syndicated project development

facility worth $ 395 mn with Standard Chartered Bank for the upcoming Waterfront integrated resort.

Sri Lanka signs loan agreements with OPEC fund for international development• Sri Lanka’s government has signed two loan agreements with OPEC fund for international

development to obtain a part financing for rehabilitation of a A5 road corridor from Badulla to Chenkaladi.

• The total estimated cost of the project for rehabilitation of A5 road corridor from Badulla to Chenkaladi is USD 140 mn and the financing agremment signed with OFID is to obtain a part financing of USD 60 mn.

Cont…

News Snippets (cont…)


Geo Tourism Maps for Sri Lanka’s eastern region • The International Finance Corporation (IFC), a member of the World Bank, following the growth in

tourism on the East coast, has teamed up with National Geographic to spotlight this region to sell it to travellers particularly interested in responsible tourism.

• Holidaymakers to the island would now be able to have a quick look at the Eastern region before arriving and have a valuable new resource in a comprehensive online Geotourism MapGuide website www.easternsrilanka.natgeotourism.com.

Cont…

Sri Lanka’s BOI signs Rs24.58bn investments from Jan – May 2015• According to Sri Lanka’s Board of Investment it has signed 42 investment agreements worth Rs

24.58 bn with enterprises representing a vast range of sectors which reflect the growing diversification of Sri Lanka’s economic base and exports.

• The investments are comprised of foreign investments of Rs 6,849 mn (USD 51 mn) and local investments of Rs 17,734 mn.


October, 2014


International News

Greek Debt Crisis2015 February - The government negotiates a four-month extension to Greece's bailout in return for dropping key anti-austerity measures and undertaking a eurozone-approved reform programme.

2015 June - Greece delays instalment of IMF debt repayment until end of month, becoming first developed country to do so. As talks with IMF, World Bank and EU 'troika' remain deadlocked, fears mount that Greece could default on its debts.

Greece closed its banks and imposed capital controls on 28 June to check the growing strains on its crippled financial system, bringing the prospect of being forced out of the euro into plain sight.

After bailout talks between the leftwing government and foreign lenders broke down, the European Central Bank froze vital funding support to Greece's banks, leaving Athens with little choice but to shut down the system to keep the banks from collapsing.

Banks will be closed and the stock market shut all week, and there will be a daily 60 euro limit on cash withdrawals from cash machines, which will reopen on 30 June. Capital controls are likely to last for many months at least.

The failure to reach a deal with creditors leaves Greece set to default on 1.6 bn euros ($1.76 bn) of loans from the International Monetary Fund that fall due on 30 June. Athens must also repay billions of euros to the European Central Bank in the coming months. Cont…23< Research & Development Unit >

Greek Debt Crisis (cont…) The impending default on the IMF loans leaves Greece

sliding towards an exit from the euro, with unforeseeable consequences for Europe's common currency project. It also carries broad implications for the global financial system.

Greece's exasperated European partners have put the blame for the crisis squarely on Prime Minister Tsipras 's shoulders. The 40-year-old premier caught them by surprise by rejecting the demands of lenders and calling a referendum on the bailout.

Source: Reuters

The creditors wanted Greece to cut pensions and raise taxes in ways that Tsipras has argued would deepen one of the worst economic crises of modern times in a country where a quarter of the workforce is already unemployed.

After announcing the referendum, Tsipras asked for an extension of Greece's existing bailout until after the July 5 vote. Euro zone officials refused, and in his televised address Tsipras branded the refusal an "unprecedented act".


China's Banks Dominate Rankings for Profits, Strength

Chinese banks filled the top four spots for profits across the industry in 2014 after making more than $180 bn between them. Chinese lenders collectively earned almost double the amount of their U.S. rivals.

Industrial and Commercial Bank of China‘s (ICBC) $59.1 bn profit last year topped the rankings, ahead of China Construction Bank, Agricultural Bank of China and Bank of China.

U.S. bank Wells Fargo ranked fifth with a $33.8 bn profit, followed by JPMorgan and HSBC. ICBC also topped The Bankers' ranking of the strongest banks in the world for the third year, which

is based on the amount of capital held, in amount rather than as a ratio of assets. The magazine says that method best reflects banks' ability to lend on a large scale and endure shocks.

China had four names in the top six strongest banks. There were four U.S. banks in the top 10 - JPMorgan was third and Bank of America was fifth - and one British and one Japanese bank.

China's big state-backed banks are growing in size and importance, fueled by their dominance of a huge domestic market. They are growing internationally, but still have relatively modest overseas assets.

China's banks are strengthening their position as the best capitalized and biggest profit makers in the world, according to The Banker magazine's annual rankings of profits and capital strength.


Cont…

China's Banks Dominate Rankings for Profits, Strength (cont…)


Source: The Banker

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 >

economic capsule - june 2015

Economy & Finance