Economic Capsule - JULY 2013

July 2013
ECONOMIC CAPSULEJuly 2013
< Research & Development Unit >

FINANCIAL SECTOR NEWS 
 Commercial Bank Only Sri Lankan Bank in Top 1000 Global Banks for 3rd Successive Year
 For the First Time, a Chinese Bank Takes the Top Spot in World Rankings
 Central Bank Places Cap on Penal Interest Rates Charged on Loans and Advances by Banks, Finance Companies and Leasing Companies
 Launch of the Common ATM Switch
 NTB gets USD 15mn ADB Financing for SME Lending
 BOC Raises USD 200 mn Syndicated Loan
ECONOMIC & BUSINESS NEWS 
 Sri Lanka’s FDIs Reach USD 430 mn in 1H, 2013
 Sri Lanka to Capture the Chinese Market
 Sri Lanka Teams up with Chinese Firm for USD 1.4 bn Port City
 Colombo and Hambantota Ports Declared as Free Ports
 Sri Lankan Experts in Global Hydro-Carbon Industry set up Home Compan
 Price Revisions
 Inflation - July, 2013
 External Trade Performance – May, 2013
 Immense Potential in Sri Lanka for UK Companies — UK Trade and Invest
 Fitch : External Finances Holding Up, Macroeconomic Performance Stabil
 Moody's : Sri Lanka's Credit Profile has Stabilized
 Standard & Poor’s : Sri Lanka 'B+/B' Ratings Affirmed; Outlook Stable
 World Economy: Growing Pains
C O N T E N T S

Commercial Bank Only Sri Lankan Bank in
Top 1000 Global Banks for 3rd
Successive Year
The Commercial Bank of Ceylon PLC has been ranked among the Top
1000 Banks of the World for a third successive year, becoming the
only Sri Lankan bank to achieve this feat.
The prestigious ranking published annually by ‘The Banker’ of the
UK, has ranked Commercial Bank at No 983 in 2013, with Tier I
capital of USD 355 mn at the end of 2012.
The Top 1000 rankings are compiled from a database of over 5,000
banks worldwide and are widely recognized by the global financial
community as the definitive guide to bank rankings and analyses.
No 983
2013

For the First Time, a Chinese Bank Takes the Top Spot in World Rankings
Eight years ago Industrial and Commercial Bank
of China ranked 32nd among the world's top
1,000 banks by Tier-1 capital, which is mostly
common stock and retained earnings. Within
two years it was in the top ten, and at the end
of last year, according to recent
figures published by the Banker, it displaced
Bank of America as the world's biggest—
the first time a Chinese bank has held that
position.
Notwithstanding China's recent financial
hiccups, the country now accounts for four of
the world's ten biggest banks and 96 of the top
1,000.
America can match China for top-ten banks, but
Europe has just one: HSBC, which benefits
greatly from its Asian operations.
.
Source: The Economist

Central Bank Places Cap on Penal Interest Rates Charged on Loans and
Advances by Banks, Finance Companies and Leasing Companies
The Central Bank has requested banks to reduce the penal rates of interest
charged on all loans and advances, including credit facilities already granted,
to a level not exceeding 2 % per annum, whilst the finance companies and
leasing companies have been requested to reduce the penal rate of interest
to a level not exceeding 3 % per annum, with effect from 1 August 2013.
According to the Central Bank the current penal interest rates charged by
banks are in the range of 2 % to 20 % per annum on the amount in arrears and
sometimes on the total amount outstanding, over and above the original
interest rates charged on the loan. In the case of finance companies and
leasing companies, the comparative rates are even higher.

Launch of the Common ATM Switch
Pursuant to a recommendation made by the National Payments Council in November 2010,
LankaClear Ltd. (LCPL), with the approval of the Monetary Board of the Central Bank of Sri
Lanka, initiated the establishment of a Common Card and Payment Switch (CCAPS) to provide
a common platform for electronic retail payments in Sri Lanka. The Monetary
Board in August 2011 designated CCAPS as the National Payment Switch in Sri Lanka.
 The first phase of CCAPS is the Common ATM Switch which will offer inter-linked service across all the ATM
machines of commercial banks who are the members of CCAPS.
 There will be such technological arrangements under separate phases of CCAPS for Point of Sale transactions,
mobile payments and other electronic retail payments in future.
 The Common ATM Switch commenced with the participation of Bank of Ceylon and People’s Bank, linking over
900 ATMs of those two banks. This will allow ATM cardholder customers of those two banks to withdraw cash
and carry out balance inquiries from any ATM of those two banks.

NTB gets USD 15mn ADB Financing for SME Lending
BOC Raises USD 200 mn Syndicated Loan
Asian Development Bank (ADB) signed a USD 15 mn loan with Nations Trust
Bank to finance Small and Medium-sized Enterprises (SMEs) located in Sri
Lanka’s post-conflict and tsunami-hit areas.
Bank of Ceylon’s syndicated loan was oversubscribed enabling the bank to
upsize the facility to USD 200 mn from the initial USD 150 mn after total bids
amounted to USD300 mn.

Sri Lanka’s FDIs Reach USD 430 mn in 1H, 2013
 According to Sri Lanks’s Investment Promotion Minister,
first half of 2013 brought in USD 430 mn worth of FDIs
(excluding the John Keels and Lake Leisure investments)
and the country is likely to touch on USD 2 bn, by end of
the year from USD 1.2 bn FDI fetched in 2012.
 According to Board of Investment Chairman Dr.
Lakshman Jayaweera the USD 430 mn has come mainly
from China and Hong Kong, while project wise the
investments have targeted a number of tourism sector
projects, manufacturing projects, and mixed
development projects.

Sri Lanka to Capture the Chinese Market
 Sri Lanka Tourism is planning to capture the Chinese
market within the next few years and has targeted
60,000 Chinese tourists for 2013.
 Chinese tourists are fast becoming the travel industry’s
number one growth segment and according to the
China National Tourism Administration, 37.9 mn
Chinese travelled abroad between January and May
2013, a growth of 17.3% from a year earlier.
 With China likely to become the world’s largest
economy by 2017 as predicted by the IMF, the
outbound tourism market will also grow within the
next few years.
Chinese Tourist Arrivals to Sri Lanka
9,625
Jan - Jun 12’
16,582 (72.3)
Jan - Jun 13’

Sri Lanka Teams up with Chinese Firm for USD 1.4 bn Port City
 Sri Lanka Ports Authority will reclaim 230 hectares
(568 acres) next to the new Colombo South port,
according to SLPA chairman Dr. Priyath Bandu
Wickrama.
 The Chinese firm will invest in reclaiming the land
and in infrastructure of the port city. It will be given
around 50 hectare of reclaimed land on a 99-year
lease for its investment. The 39-month long
construction project is to start in September, stated
Mr. Wickrama, adding the city would include eco-
parks, residential areas, offices and shopping malls.
Sri Lanka has finalised a deal with China Communications Construction Co Ltd. to build a
USD 1.4 bn city complex on reclaimed land near the Colombo harbour.

Colombo and Hambantota Ports Declared as Free Ports
The enterprises which will be benefited from this arrangement will be;
The enterprises which will be benefitted from this arrangement will be entrepot trade involving
import minor processing and re-export, off – shore business where goods can be procured from one
country or manufactured in one country and shipped to another country without bringing them to
Sri Lanka.
Provision of front end services to clients abroad, operations of the headquarters of the leading buyers,
logistic services are also will be covered by the regulations gazetted as Commercial Hub Regulations
No 1 of 2013.
The minimum investment of a new enterprise which is engaged in business activities mentioned above
should be USD5 mn. These companies are expected to achieve an annual re- export turnover of not
less than USD 20 mn over a period of five years. If the business is engaged in logistic services such as
a bonded warehouse or in the cases of operation of multi country consolidation in Sri Lanka the
minimum investment will be USD 3 mn.
The government declared the sea ports of Colombo and Hambantota as free ports, in a bid to woo
mega investments while bolstering regional and international trade.
Further, a gazzette issued by the Ministry of Finance and Planning envisages the Katunayake Export
Processing Zone, Koggala Export Processing Zone and Mattala International Airport as bonded areas.

Sri Lankan Experts in Global Hydro-Carbon Industry set up Home Company
 The Petroleum Resources Development Secretariat PRDS earlier this
year opened the country’s second round of bidding for petroleum
exploration licenses for 13 blocks located in Sri Lanka’s side of the
Mannar and Cauvery basins with several other blocks in the east and
south waters of the country also on offer for joint studies with a view
to further assessing their hydrocarbon potential. The closing date for
bids is November 30, 2013.
 According to Ceylan Energy Chairman Harry Kulasinghe, “the country
is swimming in oil and gas! the seismic information we have seen is
very encouraging and we are confident that there are significant
hydro-carbon deposits".
Top Sri Lankan professionals in the global hydro-carbon industry with over 100 years of collective
experience launched the country’s first oil and gas exploration and production company, ‘Ceylan
Energy’, with the intention of co-venturing with multinational oil companies bidding for an
exploration licence.

Price Revisions
 The excise duty on tobacco, cigarettes, liquor and
ethyl alcohol was revised with effect from 31 July
2013.
 The import duty on vehicle tyres, excluding for
busses, vehicle parts, dairy products, including
butter, liquor and tobacco products was also
revised with effect from 31 July 2013.

Inflation - July, 2013
Month
CCPI (%) CCPI Core (%)
Year on Year
(Y-o-Y)
Annual Average
(A.A)
Year on Year
(Y-o-Y)
Annual Average
(A.A)
June 6.8 8.6 4.3 6.4
July  6.1  8.3  3.1  6.2
Headline inflation fell to 6.1% in July 2013,
from 6.8% a month earlier, due to a
statistical phenomenon called the base-
effect.
External Trade Performance – May, 2013
Category
Jan-May 2012
(US$ mn)
Jan- May 2013
(US$ mn)
Growth
(%)
Exports 4,123.9 3,853.6 -6.6
Agricultural Products 965.0 924.7 -4.2
Industrial Products 3,127.8 2,915.7 -6.8
Mineral Products 26.6 8.3 -68.6
Imports 8,364.7 7,581.1 -9.4
Consumer Goods 1,392.6 1,250.5 -10.2
Intermediate Goods 4,957.8 4,431.9 -10.6
Investment Goods 1,999.9 1,893.7 -5.3
Deficit in the Trade Account 4,240.8 3,727.5 -12.1

Immense Potential in Sri Lanka for UK Companies — UK Trade and Investment
Head of South Asia Unit
Visiting Sri Lanka for the first time, United Kingdom Trade and Investment (UKTI) Head of
South Asia Unit, Esther Williams noted that the development witnessed in Sri Lanka was
much more than what she perceived it to be. In a quest to find business opportunities for UK
companies in Sri Lanka, Williams commends the nation for its innovative approaches,
especially in the apparel industry.
Q: What do you think of Sri Lanka’s economy?
A: Despite the slight dip in 2012, Sri Lanka has been experiencing high growth rates for the past few years. These are
growth rates that we are envious of as the UK and EU struggle out of the economic downturn.
The main reason for my visit to Sri Lanka is to learn about the opportunities for UK companies in an emerging market.
Having just visited Bangladesh and India prior to arriving in Sri Lanka, I was struck by the massive amounts of ongoing
infrastructure development in Colombo. It is clear that infrastructure development is very high on the agenda for the
Government. There are many UK companies that would like to tie up with local companies to share their expertise in
this sector.
Cont…

Immense Potential in Sri Lanka for UK Companies — UK Trade and Investment Head of South Asia Unit (cont…)
Q: What do you think makes Sri Lanka attractive for trade activity?
A: Sri Lanka’s geographical location makes it an ideal logistical hub. The expansion of the Colombo Port and the addition of the new Hambantota Port and
Mattala Rajapaksa International Airport are good steps to enhance the country’s ability to handle larger transhipment volumes.
The business climate is viewed favourably and there is a perception that it is easier to do business in Sri Lanka than in some other countries in the region.
Sri Lanka is ranked higher in the World Bank’s Ease of Doing Business Index than India (Sri Lanka at 81 and India at 132). Transparency International scores Sri Lanka at 79,
which is higher than India and Bangladesh. Such factors are attractive for companies when looking at Sri Lanka as a market.
Sri Lanka also has the highest literacy rate in the region and a high skilled labour force, which is why you find companies like Marks & Spencer and Speedo
producing technically advanced garments here.
I was amazed to see the use of nano technology in creating lingerie. Speedo produced the ‘fast skin’ swimwear which was used in the 2008 Olympics by the
likes of Michael Phelps. All these elements make Sri Lanka an attractive destination for investors.

Q: Your visit to Sri Lanka was to find opportunities in the country for UK companies. What do you think the opportunities are and in which sectors?
A: Tourism is an obvious sector but we see potential for investors in an already-developed ICT market, Business Process Outsourcing and manufacturing, particularly in
apparel, given Sri Lanka’s expertise in that area.
We also see education as a key sector and the potential for Sri Lanka to become an education hub. There is also potential in renewable energy as Sri Lanka becomes energy
independent.
We have seen that UK investors have already seized these opportunities. For example, we have two big UK firms operating in the ICT sectors – the London Stock Exchange
Group and Aepona – both providing software solutions to worldwide customers. We know of another major apparel manufacturer starting operations in Sri Lanka.
Furthermore, the increase in infrastructure development in post-war Sri Lanka has provided a platform for major investments and we are seeing UK companies winning
contracts for building bridges and flyovers in all parts of the island bringing communities together.
Source: Daily FT

Fitch : External Finances Holding Up, Macroeconomic Performance Stabilizing
Sri Lanka’s economy is growing at a more sustainable level as real GDP grew by 6.0% yoy in Q1,13 and
CPI pressure has moderated, rising by 6.8% yoy in Q2,13.
Sri Lanka’s external finances remain a source of concern due to a heavy external debt refinancing
schedule, where an average of USD1.9bn per annum in sovereign debt is projected to mature during
2013-2015
An intensification in external financing risks,
an extended period of overheating or a
significant deterioration in the public
finances.
Rating Factors Status Trend
Public finances Weakness Stable
Macroeconomics Neutral Stable
Structural issues Neutral Stable
External finances Weakness Stable
Strengths and Weaknesses
Sustained improvements in both the public
and external finances.
Key Rating Drivers
Upsides
Downsides

Moody's : Sri Lanka's Credit Profile has Stabilized
 Sri Lanka’s ‘low’ economic strength reflects
the country’s narrow economic base,
although growth in per capita income and
real GDP has been steady.
 Through 2013 and 2014, Moody’s expect
growth to remain below 7%, but more in
line with Sri Lanka’s estimated potential
growth rate of 6.75%.
 Sri Lanka has moderate institutional
strength, supported by a relatively strong
degree of data transparency and a default-
free debt record. Policy effectiveness-
previously a weakness - also improved
since 2012.
Cont…

Moody's : Sri Lanka's Credit Profile has Stabilized (cont…)
 Sri Lanka has made significant
progress in reducing its budget
deficits, to 6.4% in 2012 from
9.9% of GDP in 2009. However,
the deficit still remains above the
B-median of 4.8% of GDP in 2012
 The susceptibility to event risk
assesses whether a shock resulting
from economic, financial or
political events could materially
impact a government’s credit
profile.
 We assess Sri Lanka’s vulnerability
to such risks as moderate,
primarily reflecting political risks
associated with the ongoing
reconciliation process with the
relatively recent end of the nearly
three-decade long civil war. We
consider that economic and
financial risks are low.

Standard & Poor’s : Sri Lanka 'B+/B' Ratings Affirmed; Outlook Stable
Standard & Poor's affirmed its 'B+' long-term and 'B' short-term sovereign credit ratings on Sri Lanka.
The outlook on the long-term rating is stable.
 Sri Lanka has weak external liquidity, moderately high and increasing external debt, and a weighty
government debt and interest burden. In addition, some of the country's political institutions lack
extensive checks and balances.
 Sri Lanka's robust growth prospects support the ratings. Growth drivers include government
measures to reconstruct the northern districts, improve the finances of public enterprises, and limit
inflation to single digits.
Agency Rating Outlook Action Date
Fitch BB - Stable Rating & Outlook Affirmed April, 2013
Moody’s B 1 Stable Revised the Outlook from Positive July, 2013
Standard & Poor’s B + Stable Rating & Outlook Affirmed August, 2013

World Economy: Growing Pains
 Global growth is projected to remain subdued at slightly above
3 % in 2013, the same as in 2012.
 Downside risks to global growth prospects still dominate:
while old risks remain, new risks have emerged, including the
possibility of a longer growth slowdown in emerging market
economies, especially given risks of lower potential growth,
slowing credit, and possibly tighter financial conditions if the
anticipated unwinding of monetary policy stimulus in the
United States leads to sustained capital flow reversals.
 Stronger global growth will require additional policy action.
Specifically, major advanced economies should maintain a
supportive macroeconomic policy mix, combined with credible
plans for reaching medium-term debt sustainability and
reforms to restore balance sheets and credit channels.
 Many emerging market and developing economies face a
trade-off between macroeconomic policies to support weak
activity and those to contain capital outflows.
Macroprudential and structural reforms can help make this
trade-off less stark.
(Year on Year) 2012 2013p 2014p
World Output 3.1 3.1 3.8
Advanced Economies 1.2 1.2 2.1
United States 2.2 1.7 2.7
Euro Area -0.6 -0.6 0.9
Japan 1.9 2.0 1.2
Emerging Markets &
Developing Economies
4.9 5.0 5.4
China 7.8 7.8 7.7
India 3.2 5.6 6.3
P - Projections Source: IMF, WEO Update, July 2013

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
"If you want to succeed and grow,
you have to balance the
invisible hand of economics
with the visible hand of good governance"
Kishore Mahbubulani
(Kishore Mahbubani is a notable academic and former Singaporean diplomat. He is currently Professor in the Practice of Public Policy and Dean of the Lee Kuan
Yew School of Public Policy at the National University of Singapore )

Economic Capsule - JULY 2013

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