Economic Capsule - July 2015

1. Economic Capsule
July 2015
Research & Development Unit
223 rd
Issue

2. C O N T E N T S
BANKING SECTOR NEWS 
 Commercial Bank is Euromoney’s Best Bank in Sri Lanka in 2015
 Commercial Bank in World’s Top 1000 Banks for 5th Successive Year
 Commercial Bank Bangladesh Receives Highest Rating of AAA for 5th Consecutive Year
 Commercial Bank Launches New Paperless Green Banking Facility
ECONOMIC & BUSINESS NEWS 
 Inflation
 External Sector Performance – May 2015
 Vehicle Registrations Explodes!!
 Government Borrowings
INTERNATIONAL NEWS 
 ADB Trims Growth Forecasts for Asia on Slower US, PRC E
 IMF Paints Dim Picture for Europe, Suggests more Money
ANALYSIS & FORECAST
 Moody's: Sri Lanka's credit profile supported by robust gr

3. Condominium Industry
in Sri Lanka
October, 2014
Research & Development Unit
Banking News

4. Commercial Bank is Euromoney’s Best
Bank in Sri Lanka in 2015
4< Research & Development Unit >
Euromoney, widely considered one of the
world’s leading financial magazines, has
adjudged Commercial Bank of Ceylon PLC the
Best Bank in Sri Lanka in 2015 at the
magazine’s Asia Awards for Excellence
presented recently in Hong Kong.
 The prestigious Euromoney accolade is based on detailed submissions from market
participants and extensive year-round research into the banking and capital
markets in the region by the magazine’s editors, journalists and research team.

5. Commercial Bank in World’s Top 1000
Banks for 5th Successive Year
5< Research & Development Unit >
Commercial Bank has once again been ranked
among the Top 1000 Banks of the World, in the
prestigious rankings published annually by
‘The Banker’ magazine of the UK, becoming the
only Sri Lankan bank to achieve this feat five years
in a row.
 The ranking is based on the Bank’s key performance indicators for FY 2014.
Commercial Bank has moved up 39 places in the 2015 rankings.
 The Top 1000 Banks of the World are ranked on the basis of Tier I capital,
assets, capital assets ratio, pre-tax profits, return on capital, return on assets,
BIS (Basel) Capital ratio, NPL to total loans, loans to assets ratio, risk weighted
assets (RWA) to total assets (TA) ratio and cost income ratio.

6. Commercial Bank Bangladesh Receives Highest
Rating of AAA for 5th Consecutive Year
6< Research & Development Unit >
 The AAA (Triple A) long-term credit rating accorded to the Bangladesh operations
of Commercial Bank PLC has been reaffirmed by Credit Rating Information and
Services Ltd (CRISL) for the fifth consecutive year.
 Triple A is the highest credit rating given to any financial institution in Bangladesh
by CRISL.
 The rating is based on the financial performance of Commercial Bank up to
December 31, 2014 and other qualitative and quantitative information relevant to
the rating.
 Commercial Bank’s Bangladesh operations, now comprised of 18 service points
and 19 ATMs, were upgraded from AA +(Double A Plus) to AAA in July 2011. This
rating has remained unchanged since. Commercial Bank is the third largest foreign
bank in Bangladesh.

7. Commercial Bank Launches New
Paperless Green Banking Facility
7< Research & Development Unit >
Commercial Bank commissioned the first of a
new generation of automated cash deposit
terminals that completely eliminate the use of
paper, in another example of the Bank’s
continuing investment in Green technology
and sustainable development.
 Dispensing with deposit slips and envelopes, the new machine installed at the
Bank’s Rajagiriya branch has a stacker that can accept and count up to 200 notes
at a go, enabling customers to make deposits of up to Rs 200,000 at a time into
savings or current accounts, 24 hours of the day.
 The same machine may also be used to pay dues on Commercial Bank credit
cards.

8. Condominium Industry
in Sri Lanka
October, 2014
Research & Development Unit
Economic & Business
News

9. Inflation
9 < Research & Development Unit >
Headline Core
May 2015 June 2015 May 2015 June 2015
Year on Year 0.2% 0.1% 2.6% 2.8%
Annual Average 1.9% 1.7% 2.9% 2.8%
 Inflation pressure is expected to
remain low through 2015.
 With no space left on the fiscal front
to support growth, the Government
may support domestic demand
through lower interest rates.
Source: CBSL

10. External Sector Performance – May 2015
10< Research & Development Unit >
May 14
USD Mn
May 15
USD Mn
Growth
%
Jan-May 14
USD Mn
Jan-May 15
USD Mn
Growth
%
Total exports 883.5 882.5 -0.1 4,464.2 4,471.4 0.2
Textiles and garments 365.1 392.9 7.6 1,966.7 1,981.0 0.7
Tea 140.6 123.6 -12.1 644.4 561.0 -13.0
Total imports 1,353.2 1,585.5 17.2 7,545.6 7,868.0 4.3
Vehicles 49.7 93.0 87.1 246.4 477.9 93.9
Fuel 286.6 264.3 -7.8 2,048.3 1,186.0 -42.1
Textiles and textile articles 176.4 205.2 16.3 884.4 974.1 10.1
Trade Balance -469.7 -702.9 -49.7 -3,081.50 -3,396.60 -10.2
• Sri Lanka's imports in May 2015 rose 17.2 % from a year earlier - an increase led by vehicle imports,
amid growing state and private credit in 2015, while exports were flat.
• The deficit in the trade account in May 2015 widened substantially by 49.7 % to USD 703 mn in
comparison to USD 470 mn in May 2014. On a cumulative basis, trade deficit during the first five
months of 2015 increased by 10.2 % to USD 3,397 mn.
Tea exports, which were
severely affected by the lower
demand from Russia and the
Middle East, declined for the
eighth consecutive month in
May 2015
Imports of motor vehicles for
personal use, increased by 87.1
%, year-on-year.
Source: CBSL

11. Vehicle Registrations Explode!!
11
Vehicle ownership driven by credit
Finance share January to June 2015
• Vehicle registration momentum was
extremely strong in June & car
registrations hit an all-time record.
• Car registrations hit an all-time
record numbering 7,641 units in June
(2,256 units 12-months ago)
• Brand new car registrations hit an all-
time record accounting for 4,358
units in June (689 units 12-months
ago)
• Maruti accounted for 3,470 units of
which Altos accounted for 3,148 units
up from 2,334 units a month ago.
Source: JB Securities

12. Government Borrowings
12
2014 Jan-May 2015 (Rs. Bn)
Gross Borrowing 1,424.5 626.4
Domestic 1,002.0 567.1
Foreign 422.5 59.3
By way of Treasury Bills,
Treasury Bonds, Sri Lanka
Development Bonds, Central
Bank advances and foreign
loans.
Source: Ministry of Finance & Planning – Annual Report 2014, Pre-election Budgetary Position Report July 2015
Government Debt and Debt Service Indicators (Percentage)
Source: Ministry of Finance & Planning – Annual Report 2014

13. Condominium Industry
in Sri Lanka
October, 2014
Research & Development Unit
Analysis & Forecast

14. 14< Research & Development Unit >
According to Moody's Investors Service, Sri Lanka's B1 government bond
rating is supported by its record of strong growth, but constrained by high
government debt ratios.
Moody's: Sri Lanka's credit profile
supported by robust growth, constrained
by weak government finances
 Growth: Since the end of its 27 year long civil war in 2009, Sri Lanka's
economy has reaped a peace dividend in the form of GDP growth averaging
around 7.5% annually and strong inflows of both foreign direct and portfolio
investment.
 Credit Profile: However, Sri Lanka's sovereign credit profile faces challenges
posed by Sri Lanka's government debt ratios, which, even though they have
declined over the last decade, remain higher than the median for similarly
rated peers. Cont..

15. 15< Research & Development Unit >
Moody's: Sri Lanka's credit profile supported by robust
growth, constrained by weak government finances (cont..)
 Consequently, interest payments consume almost a third of
government revenues, and limit the fiscal flexibility to increase
spending on infrastructure or to introduce fiscal measures to offset a
slowdown in growth.
 Moreover, as a relatively small economy with a current account
deficit, Sri Lanka is exposed to uncertain global growth and financial
conditions in coming months, although the risks of this exposure are
somewhat mitigated by the balance of payments benefits of lower oil
prices.
 Lower oil prices have also helped subdue inflation, which was higher
and more volatile than peers in past years. Cont..

16. 16< Research & Development Unit >
Moody's: Sri Lanka's credit profile supported by robust
growth, constrained by weak government finances (cont..)
The rating outlook is stable, incorporating Moody's expectation that
the ongoing growth slowdown and political uncertainty around the
August parliamentary elections is unlikely to lead to medium term
credit deterioration.
The outlook could improve if Sri Lanka's government debt and interest
payment ratios were to stabilize at considerably lower than current
levels.
On the other hand, a reversal of policy efforts to maintain macro-
economic balance, lower fiscal deficits and improve the investment
climate would likely lead to downward pressure on the rating outlook.
Cont..

17. 17< Research & Development Unit >
Moody's: Sri Lanka's credit profile supported by robust
growth, constrained by weak government finances (cont..)
Source: Ministry of Finance & Planning – Annual Report 2014, Pre-election Budgetary Position Report July 2015

18. Condominium Industry
in Sri Lanka
October, 2014
Research & Development Unit
International News

19. 19< Research & Development Unit >
 The Asian Development Bank (ADB) has cut its 2015 growth forecast for
Developing Asia to 6.1% from 6.3%, amidst slower-than-expected economic
activity in the United States (US) and the People’s Republic of China (PRC),
according to a new report.
 Slower growth in the PRC is likely to have a noticeable effect on the rest of Asia
given its size and its close links with other countries in the region through regional
and global value chains. “While weaker-than-expected external demand, a
declining working age population, and rising wages, have contributed to a slower
rate of growth in the PRC, reforms aimed at improving labor market flexibility and
capital allocation to the most productive firms are needed as they can also help to
raise the growth rate.”
 Ongoing softness in the major industrialized economies (US, Japan, Euro Area) will
see a slowdown in East Asia as a whole
ADB Trims Growth Forecasts for Asia on
Slower US, PRC Economies

20. 20< Research & Development Unit >
 The International Monetary Fund warned that the euro zone's prospects were modest and
that more money printing than planned may be needed.
 In its report on the euro zone, the IMF states that the bloc was getting stronger thanks to
lower oil prices, a weaker euro and central bank action, but that medium-term prospects
were for an average potential growth of just 1 %.
 According to the IMF the euro area gross domestic product should accelerate to 1.7 % next
year from 1.5 % in 2015, with inflation of 1.1 % from zero.
 IMF however warned that "a chronic lack of demand, impaired corporate and bank balance
sheets, and weak productivity continue to hold back employment and investment."Potential
growth, at an average of only 1 % over the medium term, was well below what is needed to
reduce unemployment to acceptable levels in many countries, it said, adding that the euro
area was vulnerable.
 Reforms were also needed to improve labour markets and productivity. "In the euro area, the
important area is structural reforms. This is where the euro area, when compared to OECD
countries, for example, is lagging behind.
IMF Paints Dim Picture for Europe,
Suggests more Money Printing may be
Needed

21. 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 >
- A P J Abdul Kalam