economic capsule - december 2017

Economic CapsuleDecember 2017

252nd Issue

Research & Development Unit

Economic Capsule is now on

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C O N T E N T S

BANKING & FINANCE

Commercial Bank tops private banks in Interbrand’s inaugural ranking of country’s best brands

Commercial Bank - Branch Openings

Commercial Bank of Maldives opens its second branch in Hulhumalé

Fitch on Sri Lankan Banking Sector

ECONOMIC & BUSINESS NEWS

SL Economic growth slows to 3.3% in 3Q

Sri Lanka November NCPI down to 8.4 %

Sri Lanka External Sector Developments

Thoughts on the budget – Doing business reforms – Razeen Sally

Sri Lanka walking on tightrope to balance growth with stability: HSBC

EDCF Framework Arrangement of USD 500mn signed between Sri Lanka and South Korea

INTERNATIONAL NEWS

Fed raises rates a quarter point, hikes growth outlook for economy

IMF downgrades UK growth forecast on Brexit uncertainty

World Bank to cease financing upstream oil and gas after 2019

Condominium Industry in Sri Lanka

October, 2014


Banking & Finance

< Research & Development Unit >

Commercial Bank tops private banks in Interbrand’s inaugural ranking of country’s best brands

Commercial Bank was the highest-ranked private bank in the inaugural ‘Best Sri Lankan Brands 2017’and was placed fourth overall among the country’s top brands.

Interbrand assigned a value of Rs 20.33 bn to the Commercial Bank brand.

Cont..

• Explaining the methodology of the valuation, Interbrand said: “There are three key components in all of our valuations: an analysis of the financial performance of the branded products or services, of the role the brand plays in the purchase decision, and the competitive strength of the brand.


Commercial Bank tops private banks in Interbrand’s inaugural ranking of country’s best brands (Cont..)

• These are preceded by a decision on segmentation and at the end of the process are brought together to enable the financial value of the brand to be calculated.”

• One of the most active and vibrant brands in Sri Lanka, Commercial Bank’s brand building efforts maintain a healthy balance between its corporate and product communications and ground level customer engagement events. In addition to traditional media, the Bank is very active in social and digital media and customer engagement events, at national and regional level. The Bank also has a large number of Sri Lankan migrant customers overseas and continuously engages with them through various events and consumer promotions.


Commercial Bank - Branch Openings

260th – Bopitiya (19/12/17)

261st – Kolonnawa (27/12/17)

Bopitiya Opening Kolonnawa Opening


Commercial Bank of Maldives opens its second branch in Hulhumalé

Hulhumalé Opening

• The Commercial Bank of Maldives (CBM), a subsidiary of the Commercial Bank of Ceylon PLC, recently opened its second branch in the Maldives, a little over a year since it commenced operations in the archipelago.

• The new branch is located in Hulhumalé, the reclaimed island that is connected by road to the airport island of Hulhulé, which is part of the North Malé atoll.

• Commercial Bank of Maldives commenced operations on 26th September 2016. Commercial Bank of Ceylon holds a majority stake of 55%, in the Bank, which is following a strategy of providing access to its services through the integration of modern technology and infrastructure to serve the growing consumer and business needs in the market.


Fitch on Sri Lankan Banking Sector

Fitch has maintained the negative outlook on Sri Lanka's banking sector, as they expect challenging operating conditions to persist into 2018.

• The sector outlook is sensitive to trends in the operating environment. Bank credit profiles should broadly remain intact, but there could be modest pressure on the ratings of some banks if sufficient loss-absorption buffers are not maintained.

• Capitalisation remains a key issue facing the sector. There was some capital raising among banks in 2017 and Fitch expects this to continue into 2018.

• Sri Lankan banks are required to phase in higher capital buffers to meet Basel III regulations that come into effect on 1 January 2019. In addition, Fitch believes there could be a significant impact on banks' capitalization through the adoption of Sri Lanka Financial Reporting Standards (SLFRS) 9 in 2018, although the effect of this on regulatory capital ratios could be spread out.


October, 2014


Economy & Business

SL Economic growth slows to 3.3% in 3Q


• Sri Lanka's economy grew 3.3 % in 3Q, 2017 from a year earlier, but slower than the 4.0 % growth recorded in the preceding quarter.

• Growth slowed in the July to September quarter, recording its weakest performance since the second quarter last year.

Share to the GDP (at current price)

Growth %

Agriculture 7.6 (3.3)

Industry 27.8 1.9

Services 56.3 4.3

• According to DCS, economic growth in 3Q was mainly driven by the moderate expansion in the Industry and Services sectors, while the Agriculture sector continued to record a negative growth on account of weather related disruptions.

Source: DCS

Sri Lanka November NCPI down to 8.4 %


• Headline inflation decelerated in November 2017, but still remains at an elevated level in terms of both National Consumer Price Index (NCPI) and Colombo Consumer Price Index (CCPI), reflecting the impact of higher domestic food prices.

• According to CBSL although high food prices stemming from supply disruptions could cause headline inflation to remain at somewhat elevated levels in the immediate future, inflation is expected to return to the desired level towards the end of first quarter of 2018.

8.4%

7.5%

Source: CBSL

Sri Lanka External Sector Developments


The receipt of the 4th tranche of the Extended Fund Facility (EFF) Programme of the IMF in December 2017 - USD 251.4 mn

Inflows on account of divestment of Hambantota Port - USD 292.1 mn

Given these developments and reflecting the continued foreign exchange purchases on a net basis by the Central Bank amounting to around USD 1.7 bn, gross official reserves are estimated to improve to around USD 7.8 bn by end December 2017.

The rupee had depreciated by around 1.9 % against the USD so far this year (up to 27 December, 2017), compared to a depreciation of 3.8% in 2016.

Source: CBSL

Thoughts on the budget – Doing business reforms – Razeen Sally


• Dealings with Government department such as getting licenses and permits, starting a business, paying taxes, registering property, enforcing contracts and so on have been cumbersome for so long in Sri Lanka.

• Many quick-win solutions to improve the business climate involve digitalization - simplifying paperwork, putting it online, making procedures automatic, and eliminating bureaucratic discretion and procrastination.

• Sri Lanka languishes in 111th place in the World Bank’s Doing Business index, while many other countries, including India, have climbed up the rankings in the last two years.

Cont..


The Budget proposals to ease frustration with Government departments

• A single identification number for businesses lodged with the Registrar of Companies; online applications for Local Government approvals, construction permits and land registration;

• A national single window to link trade-related agencies with the Customs Department.

• A new trade portal with accessible and reliable trade information (such as trade statistics, regulatory requirements, and export and import procedures).

Thoughts on the budget – Doing business reforms – Razeen Sally (cont..)

The latter two trade-facilitation measures, long discussed but so far not implemented, dovetail with trade-and-investment reforms.

These are small-sounding announcements with potentially big, beneficial, economy-wide effects. Implementation, of course, is key and sooner rather than later.

Sri Lanka walking on tightrope to balance growth with stability: HSBC


HSBC Global Research has described Sri Lanka as a nation walking on a tightrope, trying to balance the twin targets of invigorating growth in the economy while maintaining macroeconomic stability.

Since 2016, the Central Bank has raised policy rates by 125bp with an aim of reducing excess liquidity, controlling credit expansion and to contain the build-up of adverse inflation expectations.

While concerns around Sri Lanka’s credit euphoria have been mitigated by a tighter monetary policy, inflation has continued to edge higher, much outside the Central Bank’s target of mid-single-digit. It’s the supply side disruptions due to unfavorable weather conditions that have driven food prices higher, and thereby inflation.

Policy Issues

Cont..


RISKS

Rising crude and commodity prices, along with a depreciating currency, may worsen current deficit levels, and the Government may find it difficult to continue with energy price reforms as per the scheduled timeline.

Further, a weaker than expected recovery in growth as a consequence of adverse weather conditions and a loose fiscal policy as the country moves closer to elections could further slow down the pace of fiscal consolidation and raise concerns around macroeconomic stability.

Sri Lanka walking on tightrope to balance growth with stability: HSBC (cont.)

As food prices stabilize in the months to come, inflation will start moderating and is likely to ease to the desired levels by 2018.

Source: HSBC, Asian Economics Quarterly

EDCF Framework Arrangement of USD 500mn signed between Sri Lanka and South Korea


A Framework Arrangement (FA) was signed recently between the governments of Sri Lanka and South Korea in the presence of the two countries’ Presidents.

• The committed amount of the FA was increased from USD 300mn to USD 500 mn to mark the 40th anniversary of diplomatic ties between Sri Lanka and South Korea.

• This FA will now enable the Sri Lankan Government to obtain bilateral concessional loans up to USD 500mn as a means of Official Development Assistance (ODA) from the Economic Development Cooperation Fund (EDCF) entrusted with Korea Eximbank.

• The EDCF loans, with a 0%-0.15% interest rate and up to a 40-year repayment period (including a grace period up to 10 years), are concessional so that the Sri Lankan Government’s burden to finance infrastructure development projects will be lightened.


October, 2014


International

Fed raises rates a quarter point and hikes growth outlook for economy


• The Federal Reserve came through on a widely expected interest rate hike on 13th December following its two-day policy meeting and sharply raised its economic growth forecast for 2018.

• The move will push the target range to 1.25 % to 1.5% The rate is pegged to a wide variety of debt instruments, such as credit cards and adjustable-rate mortgages.

• The inflation forecast for 2018 also got a modest boost, from 1.6% to 1.7%.

• One of the more notable developments came from the expectations Federal Open Market Committee members set for gross domestic product next year. The committee collectively raised its GDP estimate from 2.1% in September to 2.5%. Source – CNBC

IMF downgrades UK growth forecast on Brexit uncertainty


The IMF has cut its UK economic growth forecast, blaming Brexit uncertainty.

• The Fund expects growth of 1.6% this year, down slightly from its previous forecast of 1.7%.

• According to IMF chief, Christine Lagarde, uncertainty over the Brexit deal was causing UK firms to delay investment plans.

Source – BBC

• It expects growth to slow further next year, to 1.5%.

World Bank to cease financing upstream oil and gas after 2019


The World Bank will no longer finance upstream oil and gas projects after 2019, apart from certain gas projects in the poorest countries in exceptional circumstances, it said, drawing praise from environmental groups.

The announcement came as French President Emmanuel Macron told dozens of world leaders and company executives at a climate summit that they were losing the battle against climate change and needed to react.

Source – Reuters

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.


economic capsule - december 2017

Economy & Finance