Economic Capsule - December 2012


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Economic Capsule - December 2012

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Economic Capsule - December 2012

  1. 1. December 2012 < Research & Development Unit >
  2. 2. CONTENTS FINANCIAL SECTOR NEWS  ECONOMIC & BUSINESS NEWS   Commercial Bank’s 2011 Annual Report Selected as the Best  Sri Lanka Prosperity Index ‘Banking Sector’ Annual Report  Central Bank Governor, Enumerates 21 Point Plan for Bankers  Sri Lanka’s 3Q GDP Grows by 4.8%  Further Relaxations in Foreign Exchange  CBSL Cuts Policy Rate by 25 Basis Points  Sri Lankan Banks : Fitch 2013 Outlook  Sri Lanka Welcomes One Millionth Tourist  Bank Rating Outlooks 2013: China, India, Malaysia & Vietnam External Sector Performance - November 2012  Inflation - December 2012  Asia-Pacific Sovereign Credit Overview - Fitch Ratings< Research & Development Unit >
  4. 4. Commercial Bank’s 2011 Annual Report Selected as the Best‘Banking Sector’ Annual Report Commercial Bank 2011 Annual Report won the following awards at the "Excellence in Annual Reports Awards - 2012" competition organized by The Institute of Chartered Accountants of Sri Lanka. Overall Category - Bronze Award (Joint) Banking Sector - Gold Award Corporate Governance Category - Silver Award< Research & Development Unit >
  5. 5. Central Bank Governor, Enumerates 21 Point Plan for Bankers Central Bank Governor, Ajith Nivard Cabraal enumerated a “To Do List” for the Bankers to follow diligently from 2013 onwards at the Bank Directors’ Symposium held on 12th December 2012.1. Keep abreast of macro-economic factors, both national and international.2. Ensure that all regulatory directions of the Central Bank are followed diligently.3. Keep a close eye on the Bank’s capital adequacy - present and future.4. Pay close attention to corporate governance - in particular, Board practices, top management services, and regulatory responses.5. Train staff continuously, so that they are prepared for the new developments in banking in the evolving economy.6. Upgrade Information Systems for the new levels of business. Cont.< Research & Development Unit >
  6. 6. Central Bank Governor, Enumerates 21 Point Plan for Bankers (cont…)7. Improve Risk Management Systems and pay close attention to local and international trends, rather than individual “one-off” events.8. Develop a corporate planning culture and practice it diligently.9. Be conscious of “conglomerate” risk, if the Bank is a part of a group, or has associates.10. Keep a close tab on the Bank’s international links and business partners with regular “know your customer” updates.11. Attempt to improve the Bank’s rating, with at least one upgrade each year.12. Consider new opportunities, eg. investment banking, private banking services, fee based services, etc., and try to introduce new services on a staggered basis.13. Plan for management “succession” as a routine exercise, not as an exceptional effort.14. Constantly search for productivity improvements, and tighten the interest spreads to improve profitability. Cont.15. Encourage funding lines for the “5 Hubs + Tourism” initiatives of the country.< Research & Development Unit >
  7. 7. Central Bank Governor, Enumerates 21 Point Plan for Bankers (cont…)16. Maintain SME focus and use the Budget 2013 initiatives for SMEs’ effectively.17. Support foreign remittance business, both from the sender and receiver angles.18. Support lagging provinces’ growth, particularly Northern, Eastern and Uva Provinces.19. Source foreign capital for Tier 1 and Tier 2 of the Bank, by using the balance sheet strengths effectively.20. Promote foreign capital inflows among the Bank’s clients, and help to bridge the savings gap that is existing in the country, while using the new Exchange Control relaxations introduced by Budget 2013, to the best effect.21. Support local entrepreneurship and create new business leaders for the future. Source: Central Bank of Sri Lanka< Research & Development Unit >
  8. 8. Further Relaxations in Foreign Exchange As per the Budget 2013 no approval is required from the Exchange Control Department for:I. Sri Lankan residents and Sri Lankan expatriates to transfer their foreign savings into Sri Lanka, of which the rupee equivalent of USD 5 million will qualify for a 3 year tax holiday period.II. Providers of goods and services to non residents to accept foreign currency if such receipts are:III. Deposited in “Foreign Exchange Earners’ Accounts” in currencies of their choice in commercial banks within 7 working days of the transaction, orIV. Converted into Sri Lankan rupeesV. Corporate entities to borrow up to USD 10 million per year over the next 3 years, 2013 to 2015.VI. Licensed commercial banks to borrow up to USD 50 million per year over the next 3 years, 2013 to 2015.< Research & Development Unit >
  9. 9. Sri Lankan Banks : Fitch 2013 Outlook  According to Fitch, the Outlook on the National Long-Term Ratings of most Sri Lankan banks is Stable.  Fitch believes that domestic prospects should still be sufficient to support a reasonable performance and profile as the level of penetration still remains low – although risk management capacity and strength of franchises is likely to be put to the test. Cont.< Research & Development Unit >
  10. 10. Sri Lankan Banks : Fitch 2013 Outlook (Cont…) Economic Growth to Decelerate: Fitch forecasts Sri Lanka’s real GDP to fall to about 6.0%- 6.5% over 2012-2013, from 8.3% in 2011. Loan Expansion to Moderate: Fitch expects the increase in lending to remain close to the 23% upper limit of the credit ceiling in 2012. Potential Rise in NPLs: The uptick in NPLs up to end-Q312 may continue, reflecting the impact of higher input costs, drought and fragile external demand. NPL ratios could come under some pressure, but are unlikely to deteriorate to the peak experienced in 2009. Constrained Earnings: Fitch expects profitability to moderate due to dampened net interest margins amidst intense competition for deposits and a potential rise in credit costs, as loan-loss reserves remain modest. Higher Loans/Deposits Ratios: Loans/deposits ratios, which averaged 88% at 9M12, may continue to rise, as loan expansion could still outpace that of deposits. Fitch believes that reliance on non-deposit sources may continue, including funding obtained offshore, although deposits are likely to remain the main source of funding. Stronger Capitalisation Needed: Greater capital buffers are needed to counterbalance structural balance sheet issues and to absorb unexpected losses. Core capital formation is likely to be reliant on profit retention unless domestic equity markets rebound. Source: 2013 Outlook: Asia-Pacific Banks - Fitch Ratings Cont.< Research & Development Unit >
  11. 11. Sri Lankan Banks : Fitch 2013 Outlook (Cont…)< Research & Development Unit >
  12. 12. Bank Rating Outlooks 2013: China, India, Malaysia & Vietnam Source: 2013 Outlook: Asia-Pacific Banks - Fitch Ratings< Research & Development Unit >
  14. 14. Sri Lanka Prosperity IndexThe SLPI is a multi-dimensional indicator reflecting the economic and social developments inthe country and the provinces on an annual basis. 2009 2010 Growth 2011 2010/09 Growth Province Index Rank Index Rank Index Rank 2011/10 Western 72.2 1 73.5 1 1.9 76.1 1 3.5 Central 54.5 3 56.7 3 4.1 58.3 3 2.9 Southern 56.8 2 57.8 2 1.8 60.0 2 3.7 Northern 48.9 9 51.8 9 5.8 55.6 6 7.5 Eastern 50.0 8 53.3 6 6.7 54.6 8 2.5 North Western 53.3 4 55.1 4 3.4 57.1 4 3.7 North Central 50.9 7 53.0 7 4.3 54.9 7 3.5 Uva 50.9 6 52.6 8 3.4 54.5 9 3.6 Sabaragamuwa 51.8 5 53.9 5 4.1 55.8 5 3.6 Sri Lanka 56.5 58.2 3.1 60.6 4.1 Source :Central Bank of Sri Lanka < Research & Development Unit >
  15. 15. Sri Lanka’s 3Q GDP Grows by 4.8%  The Central Bank has revised Sri Lanka’s 2012 economic growth target to 6.5% from an earlier 6.8% due to its tight monetary and Third Quarter (3Q) fiscal policies, according to the bank’s Deputy Governor. Sector 2011 (%) 2012 (%)  Data released on 19.12.12 showed economic growth slowed to Share Growth Share Growth nearly a three-year low of 4.8% in the 3Q, from 6.4% y-o-y growth in the 2Q.Agri, Forestry & Fishing 11.8 6.5 11.2 -0.5  Sri Lanka implemented sweeping policy measures to avert aIndustry 29.1 10.8 29.8 7.3 balance-of-payments crisis in 2012 by raising key policy rates twiceServices 59.1 7.8 59.0 4.6 since February and floating the rupee currency. The Central Bank also kept a lid on credit growth while the government raised fuelGDP 100.0 8.5 100.0 4.8 and electricity prices as part of an effort to contain the fiscal deficit.  “As a result of those tightening measures and as well as some of the supply side factors such as drought, the third quarter has been the most affected quarter,” according to Mr. Nandalal Weerasinghe, Deputy Central Bank Governor .“As a result, for the whole year, CBSL have revised down the growth to 6.5% from the earlier 6.8%. The global economy is also recovering, which means our external sector could rebound.”  He stated the country would see a USD 100 mn balance of payments surplus this year compared to a deficit of USD 1,061 mn in 2011, and the current account deficit would be reduced to 5% of the GDP this year compared to 8% in 2011. Source: Reuters Source: Census & Statistics Department < Research & Development Unit >
  16. 16. CBSL Cuts Policy Rate by 25 Basis Points The Monetary Board of Central Previous Rate Rate w.e.f. Bank of Sri Lanka has decided to (since 05.04.12) 12.12.12 reduce the policy rates by 25 basis Repo 7.75  7.50 points each while allowing the ceiling on rupee credit extended by RRepo 9.75  9.50 banks to expire at end 2012. The Monetary Board was also of the view that the credit ceiling imposed for 2012 has served its purpose and such a policy measure may not be required in the near future.< Research & Development Unit >
  17. 17. Sri Lanka Welcomes One Millionth Tourist  Sri Lankas tourist arrivals According to the tourism rose 20.1% to 109,202 in promotion office, Sri November 2012 from a Lanka is targeting 1.2 mn year earlier with arrivals tourist arrivals for 2013 between Jan-Nov up 16% to 883,353. after welcoming a million tourists in 2012 more than it target of 950,000.  Tourism earnings for the Jan-Nov period recorded an increase of 23% to USD 905.3 Mn compared to USD 735.7 Mn in the corresponding period of 2011.< Research & Development Unit >
  18. 18. External Sector Performance InflationNovember 2012 December 2012 Jan. – Nov. 11’ Jan. – Nov. 12’ Growth % CCPI (%) Category US$ mn US$ mn Jan. – Nov. Month Year on Year Annual Avg. Exports 9,625.4 8,991.4 -6.6 Agricultural Products 2,316.6 2,114.1 -8.7 Nov 2012 9.5 7.2 Tea 1,357.9 1,273.6 -6.2 Dec 2012  9.2 7.6 Industrial Products 7,271.8 6,727.5 -7.5 Textiles and garments 3,809.1 3,633.3 -4.6 Rubber products 804.3 782.7 -2.7 Mineral Products 31.0 52.0 68.1 Imports 18,393.0 17,574.3 -4.5 Consumer Goods 3,328.3 2,755.0 -17.2 Intermediate Goods 11,114.9 10,701.6 -3.7 Petroleum 4,306.1 4,672.5 8.5 Textile and textile articles 2,118.8 2,072.6 -2.2 Investment Goods 3,904.4 4,090.9 4.8 Balance of Trade -8,767.6 -8,582.9 -2.1 Source: Central Bank of Sri Lanka< Research & Development Unit >
  19. 19. Asia-Pacific Sovereign Credit Overview - Fitch Ratings Sri Lanka  Foreign Currency (FC) and Local Currency (LC) ratings affirmed at ‘BB-’ with a Stable Outlook, May 2012 − Fiscal consolidation  Fitch expects emerging Asia’s macroeconomic performance as a − Strong growth, lower inflation region to outperform global peers.  Public finances remain weak − Currency caused sharp Gross Govt. Debt  Emerging Asia is projected to remain the fastest-growing global (GGD) rise in 2012 region, with growth of 6%-6.5% a year until 2014.  Policy tightening has eased BoP pressures,  Even excluding still fast-growing China (constituting 48% of but needs to be monitored emerging Asia’s overall GDP), the rest of the region is expected to  Key rating drivers grow 5 % in 2012, picking up to 5.5% in 2013 and 6% in 2014, − Political stability outpacing global emerging markets as a whole. − Policy consistency to deliver sustainable BoP − Sustained strong growth; improvement to  Inflation for the whole region is expected to average 3.7% a year in investment climate 2012-2014, close to the 2001-2011 average of 3.6% and below the − Credible fiscal consolidation to put public debt on average for all emerging markets of 4.8% a year. a more sustainable path Cont.< Research & Development Unit >
  20. 20. Asia-Pacific Sovereign Credit Overview - Fitch Ratings (Cont…) Long-Term Foreign Currency IDR - BBB- Long-Term Foreign Currency IDR - A+ India China  The outlooks for long term Foreign Currency (FC) & Local  Negative outlook for Local Currency issuer default ratings Currency (LC) issuer default ratings were revised to Negative from Stable on 15 June 2012, which reflects risks that India’s given in April 2011 were affirmed in April 2012. long-term growth prospects may deteriorate further and that the  No “hard landing” in short term fiscal consolidation process has slowed.  But rebalancing economy towards consumption poses  The economic outlook remains weak as real GDP continues to medium-term challenge slow and inflation stays elevated.  What could trigger a LC downgrade?  India’s external financial position remains a rating strength, as foreign-exchange reserves stood at USD295bn at end-October − Debt “migration” on to sovereign balance sheet from broader 2012, equal to six months of current external payments. This economy provides India a key buffer during periods of higher global risk − Risks to financial stability aversion − More detail on policy in these areas may follow leadership  Reform measures (e.g. fuel price hikes, government divestment transition completion in March 2013 and affect outlook and opening up of FDI) are encouraging but unlikely to generate resolution an immediate growth dividend; some proposals still require  Ratings supported by sovereign balance sheet/FX reserves legislative approval  Upsides: An acceleration in economic reforms and an improving investment climate.  Downsides: A significant loosening in fiscal policy, particularly ahead of the 2014 general elections Cont.< Research & Development Unit >
  21. 21. Asia-Pacific Sovereign Credit Overview - Fitch Ratings (Cont…) Status Trend Long- Sovereign Term Public Macro Structural External Public Macro Structural External Outlook FC IDR* finances economics issues finances finances economics issues finances Emerging Asia Korea AA - Stable Neutral Neutral Weakness Neutral Positive Stable Stable Positive Taiwan A+ Stable Neutral Strength Neutral Strength Stable Stable Stable Stable China A+ Stable Neutral Strength Weakness Strength Negative Negative Negative Stable Malaysia A- Stable Weakness Neutral Weakness Strength Negative Stable Stable Negative Thailand BBB Stable Neutral Neutral Weakness Strength Stable Stable Stable Stable Indonesia BBB - Stable Neutral Neutral Weakness Weakness Stable Stable Stable Stable India BBB - Negative Weakness Neutral Weakness Strength Negative Negative Negative Negative Philippines BB+ Stable Neutral Strength Weakness Strength Stable Stable Stable Stable Sri Lanka BB- Stable Weakness Neutral Neutral Weakness Positive Stable Stable Negative Mongolia B+ Stable Neutral Weakness Neutral Neutral Stable Stable Stable Stable Vietnam B+ Stable Neutral Neutral Neutral Neutral Stable Positive Stable Positive Developed Asia Australia AAA Stable Strength Strength Neutral Weakness Stable Stable Stable Stable Singapore AAA Stable Strength Neutral Neutral Strength Stable Stable Stable Stable Hong Kong AA+ Stable Strength Strength Neutral Strength Stable Stable Stable Stable New Zealand AA Stable Neutral Neutral Neutral Weakness Stable Stable Stable Stable Japan A+ Negative Weakness Weakness Strength Strength Negative Stable Stable Stable * Foreign Currency, Issuer Default Rating Source: Asia-Pacific Sovereign Credit Overview - Fitch Ratings< Research & Development Unit >
  22. 22. We wish all our Valued Readers a Very Happy Year  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