ec april 2011 internet

Research & Development Unit

Economic Capsule

April 2011

ComBank 1Q , 2011 Net Profit up by 86 %

ComBank Bags 13th Best Bank Award

Sri Lanka’s Top Brands: Brand Finance

More News from ComBank…

CBSL Raises Reserve Ratio of Banks

New Guidelines Issued by the Central Bank for Licensed Commercial Banks Regarding the Exposure of Banks to the Stock Market

Expansion of Financial Services – 2010

Credit Card Transactions on the Rise, Despite Usage Decline

Economic & Business News

Financial Sector NewsC

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FDI Inflows Fall in 2010

Sri Lanka Raises Taxes on Imported Vehicles

March 11’ Tourist Arrivals up 43.5 %

S&P Cuts Outlook on US & Japan Debt Rating

CBSL Medium Term Macroeconomic Framework

Latest IMF Projections

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Financial Sector News > >

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Commercial Bank 1Q, 2011 net profit rose 86 % to Rs. 2,065 mn from a year ago as it benefited from lower taxation.

For the 03 months ended Mar 31 2011 2010 % Chg

Profit Before Tax (after VAT) (Rs mn) 2,973.3 1,904.9 56.09

Profit After Tax (Rs mn) 2,065.3 1,107.9 86.42

As at 31.03.11 31.12.10 % Chg

Gross Loans & Advances (Rs mn) 235,705.6 228,149.4 3.31

Deposits (Rs mn) 274,532.2 259,744.6 5.69

Assets (Rs mn) 394,758.7 370,257.9 6.62

*Gross NPA (%) 4.60 4.22

*Interest Margin (%) 4.59 4.74

*ROA (%) 3.14 2.69

*ROE (%) 24.66 17.87

56.09 %

86.42 %

ComBank 1Q, 2011 Net Profit up by 86 %

(Group)

* Bank

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ComBank Bags 13th Best Bank Award

The Commercial Bank of Ceylon PLC has been chosen as the Best Bank in Sri Lanka for the 13 th

successive year by the Global Finance magazine.

Commercial Bank and other winners were chosen through a broad-based assessment taking into account growth in assets, profitability, strategic relationships, customer service, competitive pricing and innovative products

Sri Lanka’s Top Brands: Brand Finance

According to Brand Finance’s seventh annual review, top 100 brands had a combined brand value of Rs. 175 bn, up by 18% over 2009’s figure of Rs. 148. 3 bn.

In 2008 it amounted to Rs 127 bn whilst three years ago the value was Rs 119.3 bn.

Rank 2011 Rank 2010 Brand Brand Value (Rs. Mn)

1 1 Bank of Ceylon 16,704

2 2 People’s Bank 16,631

3 3 NSB 11.540

4 7 HNB 9,804

5 5 Commercial Bank 9,534

6 8 Dialog 9,023

7 6 Food City 8,377

8 4 Sri Lankan 7,287

9 12 CTC 6,698

10 9 SLT 6,488


197 Akkaraipattu

198 Eravur

CBC Branch Openings

More News from ComBank…Back to

Contents

CBSL Raises Reserve Ratio of Banks Back to

Contents


According to the Central Bank, notwithstanding the favourable developments in the economy, broad money growth continued to accelerate with year-on-year growth recording 17.7 % in February 2011.

This growth has been mainly driven by increased credit flows to the private sector, which expanded significantly by 29.7 % (yoy) in February 2011, reflecting the acceleration of economic activity and the low base effect.

While the excess liquidity in the domestic money market remains a concern, left unchecked, it could further expand monetary aggregates, leading to higher inflation than originally envisaged.

Thus, the Monetary Board considers it prudent to pull back any buildup of demand-side pressure on inflation and ensure continued monetary stability.

Accordingly the Central Bank’s Monetary Board increased the reserve ratio applicable for commercial banks by one percentage point, to 8 % with effect from April 29, 2011 in a bid to curb rising inflation.

Date of Change SRR(%)

13.10.2008 9.25

25.11.2008 7.75

24.02.2009 7.00

29.04.2011 8.00

New Guidelines Issued by the Central Bank for Licensed Commercial Banks in Sri Lanka Regarding the Exposure of Banks to the Stock Market

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Limits on Credit Exposures: The total on-balance sheet credit exposure of a licensed commercial bank on facilities granted to customers/investors, other loans granted for

the purchase of listed shares and loans granted against collateral of listed shares for tenure less than one year shall not exceed 5 % of total loans outstanding as at the end of the preceding quarter.

A licensed commercial bank that has granted credit facilities in excess of the maximum limit imposed in above as at the date of these Directions shall not grant additional facilities exceeding such limit and shall reduce such excess exposure to be within the limit of 5 % by 31 March 2012.

Limits on Margin Trading on Shares: A licensed commercial bank may extend margin trading facilities on shares to customers/investors, provided that:I. a margin trading facility given to any customer shall not exceed 50 % of the market value of the customer's share portfolio at the close of each

trading day, andII. all shares purchased with margin trading facility shall be under pledge to the bank providing margin trading facility.

Reporting: Licensed commercial banks shall maintain details of exposure to the stock market in accordance with the reporting format given by the Central

Bank and report to the Director of Bank Supervision on or before the 15th day of the month following each quarter.

Limits on issue of guarantees for purchase of shares: A licensed commercial bank may issue guarantees for purchase of shares from Initial Public Offerings provided that such guarantees issued in

respect of any Initial Public Offering shall not exceed 50% of the value of such Initial Public Offering.

Cont…

New Guidelines Issued by the Central Bank for Licensed Commercial Banks in Sri Lanka Regarding the Exposure of Banks to the Stock Market (cont…)

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Role of Board of Directors: The Board of Directors of each licensed commercial bank shall:

I. formulate a board approved risk management policy, guidelines and internal controls on exposures to stock market activities including a prudential limit for total exposure relative to Tier I capital of the bank and assess risk exposures, i.e., credit, liquidity and concentration, with appropriate risk management information on an on-going basis, and

II. require its subsidiaries and associate companies to maintain credit exposure to the stock market within prudent limits and closely monitor such exposures.

Disclosure: Licensed commercial banks shall disclose their total credit exposure to the stock market in the "Notes to the financial statements" giving amounts outstanding in relation to on balance sheet and off-balance sheet items separately.

Expansion of Financial Services - 2010Back to

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Item End 09 End 10

Change in 2010

Total Of which N&E

Bank Branches 1,847 1,937 90 29

Other Banking Outlets 890 988 98 23

ATMs 1,876 2,009 133 36

Source: CBSL

Credit Card Transactions on the Rise, Despite Usage Decline Back to

Contents


Credit Cards in Use

4Q 09’ 4Q 10’ % Chg

Total no. of credit cards (As at end period)

840,509 778,544 -7.4

Total number of transactions (in '000)

4,205 4,447 5.8

Credit Cards in Default

Total number of credit cards in default (defined as the credit cards in which the "minimum payment" is in arrears for over 90 days) recorded by the Credit Information Bureau decreased by 6.1% to 87,802 during 4Q 2010, over 3Q 2010.

The total value of defaults also declined by 7.2 % to Rs. 3 bn during the reference period.

Debit Cards in Use - 2010

3Q - 2010 4Q - 2010 % Chg

Total No. of Debit Cards (As at end period) 6,520,891 6,967,204 6.84

Total Number of transactions 1,334,308 1,716,761 28.7

Total Value of transactions (Rs.mn) 3,916 5,237 33.7

Source: CBSL, Payments Bulletin – 4Q 2010

Economy & Business News > >

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FDI Inflows Fall in 2010Back to

Contents


(USD mn) 2010 2009 % Change

Inflows 516 601 (14)

Outflows 43 20 115

Net Inflows 473 581 (19)

Foreign Direct Investment to Sri Lanka during 2010 had fallen by 14 % to USD 516 mn, as against the USD 601 mn in the year 2009.

Highest FDI inflows

Country Amount (US$ Mn)

India 110

Malaysia 72

U.A.E. 66

Further, as observed in the previous years, the telecommunication industry had attracted most of the FDI inflows during 2010.

The FDI inflows in 2010 consisted of equity capital of USD 44 mn, loans and advances of USD 112 mn by the shareholders, intra-company borrowings of USD 126 mn, foreign loans of USD 39 mn and reinvestment of retained earnings of USD 195 mn by the existing companies.

Consequently, the net FDI inflows during 2010 declined to USD 473 mn from USD 581 mn recorded in 2009.

FDI outflows increased to USD 43 mn in 2010 from USD 20 mn in 2009.

Sri Lanka Raises Taxes on Imported VehiclesBack to

Contents


Sri Lanka has raised import duties on several

categories of petrol-engined cars and three

wheelers with steeper increases seen in larger

hybrid vehicles, which had exceptionally low

taxes earlier. (w.e.f. 24.04.11)

Previous Tax New Tax (w.e.f. 24.04.11)

Petrol Vehicles

1000 cc or less 95% 120%

1000 - 1600 cc 119% 128%

Three Wheelers

Petrol 38% 50%

Diesel 38% 60%

Hybrid Vehicles

Below 2000 cc

38%

50%

2000 - 3000 cc 75%

Above 3000 cc 100%

Total taxes on all diesel and petrol cars above 1600 cc will remain unchanged

The period pertaining to the importation of used petrol cars, has also been brought down from 3.5 to 2 years

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March 11’ Tourist Arrivals up 43.5 %

Tourist arrivals in the first quarter of 2011 have jumped by 34.1 % to 215,124 boosted by a 43.5% increase to a high 75,130 arrivals in March 2011 largely on account of the Cricket World Cup.

Sri Lanka began the New Year with 74,197 tourists, up by 46.2% over a year earlier whilst arrivals dipped to 65,797 in February, which was still above 15% over the corresponding month of 2010.

March’s 75,130 arrivals figure is the second all time best behind December 2010 windfall of 84,627.

Tourism Revises Arrivals Target up to 800,000 for 2011Encouraged by faster growth, Sri Lanka Tourism has revised its tourist arrival forecast for 2011 to 800,000 from the previous estimate of 700-750,000.In April, 2011 Sri Lanka welcomed the 250,000th tourist for the year, a historic milestone for the country as it was the first time Sri Lanka was able to get such a number within the first four months of a year.

Tourism Eyes USD 2.5 bn Earnings by 2016Sri Lanka Tourism hopes to realize a foreign exchange earnings figure of USD 2,500 mn by 2016 from a level of USD 575.9 mn recorded in 2010. Backed by the high flying arrivals and growth during the past few months, Sri Lanka Tourism is also expecting foreign earnings of USD 600 mn in 2011, USD 980 mn in 2012, USD 1,360 mn in 2013, USD 1,740 mn in 2014 and USD 2,120 mn in 2015.Average spending per tourist per day is to see an increase of USD 97.1 by the end of 2011, a 7.53 % increase from 2010 figure of USD 90.3. This number is expected to rise to USD 130 by end 2016. Room capacity which stood at 14, 932 in 2010 is expected to rise up to 15,000 by the end of 2011 followed by 21, 960 in 2012.

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S&P Cuts Outlook on US & Japan Debt Rating Back to Contents


Standard & Poor's lowered its outlook for Japan's credit rating to negative amid concern the country's finances will deteriorate further as it rebuilds after March 11’ earthquake and tsunami. A negative outlook means Japan's sovereign debt rating could be downgraded, which might increase the government's borrowing costs.

S&P has stated that the March 11’ disasters cast doubts over Japan's economic performance and will increase its already large debt. S&P has projected that reconstruction costs could range from 20 trillion yen (USD 245 bn) to 50 trillion yen (USD 623 bn), increasing the country's fiscal deficits above prior estimates by 3.7 % of gross domestic product through 2013.

If Japan's fiscal deterioration outpaces those revised estimates and the country does not boost revenue through tax increases or other means, S&P’s long-term sovereign rating could be downgraded from its current 'AA-' according to S&P.

Standard & Poor's (S&P) downgraded its outlook on U.S. government debt, expressing unprecedented doubts over the ability of Washington to bring the massive federal budget deficits under control.

The agency has lowered the long-term outlook to "Negative" from "Stable," stating that there is a one in three chance the United States could lose its top investment rating on its debt in the next two years.

S &P Cuts Long-term Outlook for US Debt

S&P Cuts Outlook on Japan's Debt Rating

CBSL Medium Term Macroeconomic Framework Back to Contents


Indicators Projections

Real Sector Units 2009 (b) 2010 (c) 2011 2012 2013 2014

GDP at Market Prices Rs. bn 4,835 5,602 6,440 7,405 8,513 9,790

Real GDP Growth % 3.5 8.0 8.5 9.0 9.5 9.5

GDP Deflator % 5.9 7.3 6.0 5.5 5.0 5.0

Per Capita GDP US$ mn 2,057 2,399 2,794 3,200 3,660 4,190

Total Investment % of GDP 24.4 27.8 29.5 32.0 33.0 34.0

Domestic Savings % of GDP 17.9 18.7 19.9 23.2 25.0 27.0

National Savings % of GDP 23.7 24.7 25.8 29.1 30.7 32.3

External Sector

Trade Gap US$ mn -3,122 -5,205 -6,762 -7,399 -7,993 -8,531

Exports US$ mn 7,085 8,307 9,626 10,876 12,341 14,027

Imports US$ mn 10,207 13,512 16,389 18,275 20,334 22,558

Services (net) US$ mn 391 698 1,148 1,487 1,778 2,209

Current Account Balance US$ mn -214 -1,418 -2,140 -1,953 -1,738 -1,500

Current Account Balance % of GDP -0.5 -2.9 -3.7 -2.9 -2.2 -1.7

Overall Balance US$ mn 2,725 921 775 525 825 1,325

External Official Reserves (d) (e) Months 5,097 6,610 8,004 8,938 9,668 10,281

Debt Service Ratio (f) % 18.9 14.6 13.5 16.2 12.6 14.3

Cont…

CBSL Medium Term Macroeconomic Framework (cont…) Back to Contents


Indicators Projections Fiscal Sector Units 2009 (b) 2010 (c) 2011 2012 2013 2014

Revenue & Grants % of GDP 15.0 14.9 15.6 16.3 16.6 16.7

Total Revenue % of GDP 14.5 14.6 15.2 16.0 16.5 16.5

Grants % of GDP 0.5 0.3 0.4 0.3 0.2 0.2

Expenditure & Net Lending % of GDP 24.9 22.9 22.4 21.5 21.3 21.5

Current Account Balance % of GDP -3.7 -2.1 -0.8 1.0 1.7 1.6

Overall Budget Deficit % of GDP -9.9 -7.9 -6.8 -5.2 -4.8 -4.8

Domestic Financing % of GDP 5.1 3.6 4.6 4.2 3.9 3.9

Government Debt % of GDP 86.2 81.9 80.0 75.0 71.0 67.0

Financial Sector (g)

Reserve Money Growth % 13.1 18.8 14.5 14.5 14.5 14.5

Broad Money Growth (M2b) % 18.6 15.8 14.5 14.5 14.5 14.5

Change in Credit to Government Rs. bn 57.4 -13.1 42.0 32.4 25.0 0..0

Change in Credit to Private Sector Rs. bn -73.4 300 281.3 303.1 340.1 383.7

Growth in Credit to Private Sector % -5.8 25.1 18.8 17.1 16.4 15.9(a) Based on the information available by mid March 2011(b) Revised(c) Provisional(d) Excluding receipts of Asian Clearing Union(e) External official reserves include the proceeds from the IMF Stand-by Arrangement facility-2009.(f) Total debt service payments as a percentage of earnings from exports of goods and services(g) Year-on-year growth in end year values

Source: CBSL Annual Report 2010


The IMF in its April 2011 World Economic Outlook (WEO) , stated that the global economic recovery is gaining strength, with world growth projected at about 4½ percent in both 2011 and 2012, but unemployment remains high, and risks of overheating are building in emerging market economies.

High commodity prices present new policy challenges, while old challenges––fiscal and financial repair and reform and the rebalancing of global demand–remain work in progress.

Emerging Risks:

Rising food and commodity prices pose a threat to poor households, adding to social and economic tensions, notably in the Middle East and North Africa.

Oil prices have shot up because of unrest. Disruptions so far would have only mild effects on economic activity but, given falling spare oil production capacity, risks are on the upside.

The earthquake and tsunami in Japan had exacted a terrible human toll but that its global macroeconomic impact would be limited.

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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.

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ec april 2011 internet

Economy & Finance