Economic Capsule - March 2016

Economic CapsuleMarch 2016

Research & Development Unit

231st Issue

C O N T E N T S

BANKING AND FINANCE Global Finance(USA) names Commercial Bank ‘Best Bank in Sri Lanka’ for 17th time Commercial Bank Introduces e-passbook on Mobile Phone Commercial Bank opens Agriculture & Micro Finance Unit in Neluwa

ECONOMY & BUSINESS

Port City gets Approval Sri Lanka Economy Grows by 4.8% in 2015 Sri Lanka – Rating Actions Rising Capital Outflows US Federal Reserve holds interest rates Bank holds UK interest rates at 0.5% "Brexit“ Oil Prices World Happiness Index 2016

Condominium Industry in Sri Lanka

October, 2014


Banking & Finance

4< Research & Development Unit >

Global Finance(USA) names Commercial Bank ‘Best Bank in Sri Lanka’ for 17th time

One of the world’s leading financial magazines has rated Commercial Bank the Best Bank in Sri Lanka, reaffirming the Bank’s status as the leader in its field for an emphatic 17th year.

Global Finance’s 2016 list of the world’s 25 Best Emerging Markets Banks in Africa, Asia-Pacific, Central & Eastern Europe, Latin America and the Middle East, names Commercial Bank alongside some of the leading banks in these regions.

Criteria for choosing the winners included growth in assets, profitability, strategic relationships, customer service, competitive pricing, and innovative products. In addition, a poll of Global Finance’s corporate readership was conducted in order to increase the accuracy and reliability of the results, according to the magazine.


Commercial Bank Introduces e-Passbook on Mobile Phone

Learn more

A breakthrough digital virtual mobile application offered free by the country’s largest private bank enables account holders to have a real-time view of transactions of the past 30 days on their mobile phones or tabs anytime, anywhere.

The e-Passbook is able to display account history as in a standard savings passbook or a current account statement. It offers users real-time tracking of account transactions of the last 30 days, and can be used as a single repository for multiple accounts enrolled by an account holder for the facility, with the capability to view each account separately.

Commercial Bank has broken new ground in technology-enabled convenience by becoming the first bank in Sri Lanka to offer customers an e-Passbook that provides access to details of savings, current, NRFC and RFC accounts on Android and iOS powered mobile devices.

http://www.combank.net/newweb/personal/services?services=15

6

Commercial Bank opens Agriculture & Micro Finance Unit in Neluwa

< Research & Development Unit >

Commercial Bank opened its 14th Agriculture & Micro Finance Unit (AMFU) at Neluwa in the Galle District to facilitate the Bank’s efforts to support micro, small and medium entrepreneurs in the area including commercial scale agriculture entrepreneurs.

Commercial Bank’s Agriculture & Micro Finance Units play a key role in helping the Bank identify specific needs of people who require assistance to develop either their agricultural activities or small businesses, and are dedicated to promoting agriculture related lending and micro finance and resolving difficulties. These units also conduct programmes to enhance domain knowledge and financial literacy among entrepreneurs in the target segments.


October, 2014


Economy & Business


Port City gets Approval

Sri Lanka's cabinet had granted approval for China Communication Construction Company (CCCC) to resume the biggest foreign direct investment project in the country after suspending it in March 2015.

According to CHEC Port City Colombo (Pvt) Ltd, which handles the project for CCCC , the suspension had resulted in significant losses. CCCC had estimated in March last year that the shutdown would result in losses of more than $380,000 a day.

The original deal involved 269 hectares of land being reclaimed, including 108 hectares assigned to the Chinese investor, of which 20 hectares was granted on a freehold basis.

Source: Reuters


Sri Lanka Economy Grows by 4.8% in 2015

GDP and Sector Growth Rates [at constant (2010) market prices]

2011 2012 2013 2014 2015

Agriculture 8.2 7.8 7.8 7.8 7.9

Industries 26.9 26.8 27.0 26.7 26.2

Services 54.9 55.9 56.2 56.3 56.6

Percentage Shares of GDP [at constant (2010) market prices]

Sri Lanka gross domestic product grew 4.8 % in 2015 slowing from 4.9 % from 2014, with the fourth quarter growing by 2.5 %. This 4th quarter growth rate follows quarterly growth rates of 4.4%, 7% and 5.6% recorded for the 1st, 2nd and 3rd quarters respectively in 2015. The fastest growth sectors for 2015 were finance and information technology.

Source: Department of Censes and Statistics

Cont..

Source: Department of Census and Statistics

Sector Growth Rates [at constant (2010) market prices, 2011 to 2015]


Cont..


Percentage Shares of GDP at current market prices, 2010 to 2015




Sri Lanka – Rating Actions

Present Previous

Rating Outlook Rating Outlook

Fitch B+ Negative BB- Stable

S&PB+

(No Change)

Negative B+ StableSource: Fitch, S&P

Cont..


Sri Lanka: Concerns Raised by Rating Agencies

Fitch S&P Moody’s

Increasing refinancing risks Significant debt maturities Weaker public finances Decline in foreign-exchange

reserves Foreign-currency debt

portion remains high

Rising pressure on Sri Lanka's external liquidity

Short-term capital outflows that have eroded the country’s reserve buffers.

Country's weakened public finances.

Sri Lanka rising non-resident deposits and foreign debt has increased the country’s external vulnerability to above similarly rated countries

The country’s low revenue base is a key constraint on fiscal consolidation.

Source: Fitch, S&P and Moody’s


Rising Capital Outflows

Government Securities held by Foreigners

Foreign investors have sold about USD 200mn worth of rupee denominated Treasury bills over the past two weeks, accelerating sales which slowed for a few weeks.

Foreign investor holdings of Sri Lanka rupee bonds which were at Rs 267.8 bn on March 02, down from Rs 268.8 bn a week earlier, fell to Rs 247 bn on March 09 and to Rs 237 bn on March 16.

Since the beginning of the year foreign investors have sold about USD 450mn worth of bonds.

Meanwhile, foreign investors were net sellers of USD 1.8mn worth of equities so far this year (up to 11th March, 2016).

Cont..Source: Central Bank of Sri Lanka


Rising Capital Outflows (cont..)

Meanwhile, emerging markets had net capital outflows of $735 bn in 2015, up from $111 bn in 2014 and more than previously forecast, and are expected to see $448 bn of outflows including errors and omissions in 2016, according to IIF.

The Washington-based group, an authoritative source of data on investment flows to and from the developing world, stated that heavy outflows from China, which reflect currency and growth worries, were the driving factor behind the losses in 2015. China had $676 bn in outflows in 2015, according to IIF.


October, 2014

Global Economic Update

US Federal Reserve holds interest rates The US Federal Reserve has decided to keep

interest rates at between 0.25% and 0.5%.

According to the central bank the labour market was strengthening, but it was still looking for inflation to reach its 2% target and expected the US economy to continue to "expand at a moderate pace"

The US central bank last raised rates in December, saying it expected to raise rates four times in 2016.

It now says it expects to raise rates just twice this year.

In a statement, the Fed's Open Market Committee - which decides the level of interest rates – stated that while the US economy was seeing some improvement, weaker global markets were having a dampening effect.

Bank holds UK interest rates at 0.5% UK interest rates have been held at 0.5%

once again by the Bank of England.

All nine members of the Bank's Monetary Policy Committee (MPC) voted to keep rates at their record low, where they have now been for seven years.

The decision to freeze rates comes amid worries about global growth and uncertainty ahead of the EU referendum.

The Bank stated that uncertainty in the run-up to the referendum on EU membership - to be held on 23 June - had hit the sterling, and that UK economic growth could slow.

17


On February 20th David Cameron, Britain's Prime Minister, set June 23rd as the date for a referendum on the country’s membership of the European Union.

The move immediately prompted government ministers to declare their backing for either the “remain” or “leave” campaigns. Mr Cameron strongly believes in the benefits of continued EU membership, but a handful of high-profile MPs, have pledged support for the “out” campaigners.

In early 2015 the chances of ”Brexit”— Britain departing from the European Union—seemed remote. Today, largely because of Europe’s migration crisis and the interminable euro mess, the polls have narrowed. Some recent surveys even find a majority of Britons wanting to leave.

"Brexit"

Source: The Economist


“Brexit” (Cont…) A UK exit from the EU would cause a "serious economic shock", potentially costing

the country £100bn and nearly one million jobs, according to a report commissioned by the CBI (The Confederation of British Industry).

According to the business lobby group a study found that a vote to leave would have "negative echoes" lasting many years.

It said the cost could be as much as 5% of GDP and 950,000 jobs by 2020.


Source: The Economist

Crude prices got a heady start after Qatari oil minister Mohammed Bin Saleh Al-Sada stated that producers from within and outside the Organization of the Petroleum Exporting Countries will meet in Doha on April 17 to discuss output freeze plans.

Around 15 OPEC and non-OPEC producers, accounting for about 73 % of global oil output, support the initiative, according to the minister.

Since the freeze was first proposed in February, prices have recovered about 50 % from decade-low levels but been volatile without a firm meeting date.

Oil Prices


World Happiness Index 2016

Denmark overtook Switzerland as the world's happiest place, according to World Happiness Report 2016 that urge nations regardless of wealth to tackle inequality and protect the environment.

The report, prepared by the Sustainable Development Solutions Network (SDSN) and the Earth Institute at Columbia University, showed Syria, Afghanistan and eight sub-Saharan countries as the 10 least happy places on earth to live.

The report found that inequality was strongly associated with unhappiness - a stark finding for rich countries like the United States, where rising disparities in income, wealth, health and well-being have fueled political discontent.

Sri Lanka has climbed 15 places to rank at 117 position (out of 157 countries) in the World Happiness Report. Sri Lanka was ranked at No. 132 in the report published in 2015.


World Happiness Index 2016 (cont..)

Source: World Happiness Report 2016

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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Economic Capsule - March 2016

Economy & Finance