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Economic Capsule - December 2013


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Economic Capsule - December 2013

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Economic Capsule - December 2013

  1. 1. December 2013 < Research & Development Unit >
  2. 2. CONTENTS FINANCIAL SECTOR NEWS  ANALYSIS & FORECAST  Commercial Bank Shines at Annual Report Awards  Credit Expansion  Commercial Bank Opens ‘24 Hour Automated Banking Centre’ at Ward Place  Interest Rates  Commercial Bank – Service Point Openings  Exchange Rate  2014 Outlook: Asia-Pacific Banks  Sri Lanka Banking Sector 2014 Outlook - Fitch ECONOMIC & BUSINESS NEWS   External Sector  Snippets  Fed Cuts Bond Buying  Yuan Passes Euro as 2nd-Most Used Trade-Finance Currency  European Union Loses AAA Rating From S&P on Weaker Cohesion  RBI Talks Tough on Inflation, yet Holds Rates for Now  Top Growers 2014  The New Asian Economic Superstars 2014
  4. 4. Commercial Bank Shines at Annual Report Awards The Commercial Bank of Ceylon dominated the 2013 Annual Report Awards of the Institute of Charted Accountants of Sri Lanka, winning the topmost award for the Best Annual Report across all sectors and three category awards, reaffirming its superiority in the sphere of financial reporting and corporate disclosures.  Overall Excellence in Financial Reporting (Cyril Gardiner Memorial Trophy)  Best Annual Report – Banking Sector (Edmund J. Cooray Memorial Trophy)  Gold award for Management Commentary  Silver award for Corporate Governance Disclosure < Research & Development Unit >
  5. 5. Commercial Bank Opens ‘24 Hour Automated Banking Centre’ at Ward Place The Commercial Bank has opened its first 24 Hour Automated Banking Centre at its Ward Place branch to offer a range of services around the clock, every day of the year. The ‘24 Hour Automated Banking Centre’ offers opening of savings accounts and fixed deposits, access to online banking, settlement of credit card dues, and withdrawals via an ATM, as well as cash and cheque deposits. Customers can also submit loan applications through the Automated Banking Centre at a later stage.
  6. 6. Commercial Bank – Service Point Openings  233 @ Kadawatha (Arpico Super Centre)  234 @ Rajagiriya (Keells Super)  235 @ Attidiya  11th Agriculture & Micro Finance Unit @ Ratnapura < Research & Development Unit >
  7. 7. 2014 Outlook: Asia-Pacific Banks Source: Fitch < Research & Development Unit >
  8. 8. Sri Lanka Banking Sector 2014 Outlook - Fitch  Negative Sector Outlook: − Fitch Ratings believes that pressure on credit profiles built up through rapid credit expansion over 20102012, and stress on borrower cash flows, is likely to continue alongside an uncertain macroeconomic environment. − Sri Lanka also remains susceptible to risks emanating from the global economic environment, including the impact of US monetary stimulus tapering.  Stable Rating Outlooks: − The outlooks on the ratings of most Sri Lankan banks remain stable. − The ratings of state-linked banks benefit from extraordinary state support, with the sovereign also on Stable Outlook. − The agency forecasts Sri Lanka’s real GDP growth to remain high, providing opportunities for further penetration and underpinning the banks' performance and profiles. Cont… < Research & Development Unit >
  9. 9. Sri Lanka Banking Sector 2014 Outlook – Fitch (cont…)  Moderate Lending Growth: − Fitch expects the pace of credit expansion to increase, but to be moderate. − Credit expansion decelerated dramatically in 2013, in response to tightening measures implemented by the authorities in 2012. Loans increased by just 5.2% in 9M13 year to date (2012: 22%). − The authorities efforts in 2013, including a reduction in policy rates, are aimed at encouraging an increase in bank lending.  Weaker Asset Quality: − Fitch expects a continuing trend of asset-quality deterioration in 2013, reflecting the challenges in the operating environment and the lagged effect of rapid lending. − NPL ratios are unlikely to reach the 2009 peak, however, in light of the measures taken by banks’. The surge in NPLs from gold-backed loans also contributed to the sharp rise in NPLs in 2013. Fitch does not expect this to be a major source of incremental NPLs, however, in view of measures implemented to reduce banks’ exposure to gold. Cont… < Research & Development Unit >
  10. 10. Sri Lanka Banking Sector 2014 Outlook – Fitch (cont…)  Moderate Profitability: − Fitch believes that reported credit costs do not fully reflect underlying asset-quality pressures, and the agency therefore expects higher credit costs. − But the impact on operating profit is likely to be counterbalanced through higher net interest income alongside the expected pick-up in the pace of lending.  Limited Capital Buffers: − Capitalisation has come under pressure alongside rising NPLs and higher provisioning risks. Banks ‟ equity relies mostly on retained earnings, and would be unlikely to increase unless domestic equity markets rebound, supporting capital-raising initiatives.  Satisfactory Funding: − Deposits should remain core to the funding of Sri Lankan banks. The drop in loan demand provided some respite to the sector’s loans/deposits ratio (LDR), which at 82% still remains relatively high. A few Sri Lankan banks have issued US dollar-denominated bonds, which has resulted in incremental foreign-exchange risk Cont… through unhedged exposures. < Research & Development Unit >
  11. 11. Sri Lanka Banking Sector 2014 Outlook – Fitch (cont…) < Research & Development Unit > Source:: Fitch 2014 Outlook: Asia-Pacific Banks
  13. 13. External Sector Category Exports Agricultural Products Tea Industrial Products Textiles and Garments Rubber Products Food, Beverages and tobacco Mineral Products Imports October October Growth Jan-Oct 2012 2013 October 2012 USD mn USD mn (%) USD mn 770.4 1,041.1 35.1 8,075.0 187.5 257.7 37.4 1,923.9 Jan- Oct Growth 2013 Jan- Oct USD mn (%) 8,368.3 3.6 2,094.9 8.9 116.0 146.8 26.6 1,147.6 1,249.7 8.9 575.9 771.4 34.0 6,094.7 6,224.3 2.1 297.2 436.4 46.8 3,269.4 3,563.0 9.0 62.9 19.1 6.1 94.5 25.5 10.8 50.1 33.2 76.3 707.2 232.3 48.3 710.4 192.4 38.8 0.5 -17.2 -19.6 1,579.1 1,535.4 -2.8 15,752.2 15,583.9 -1.1 Consumer Goods Intermediate Goods Fuel Textiles and Textile Articles Investment Goods 227.8 972.6 374.3 224.0 376.4 286.2 896.9 367.7 186.2 350.8 25.6 -7.8 -1.8 -16.9 -6.8 2,519.5 9,524.8 4,089.5 1,868.6 3,681.8 2,619.1 9,425.5 4,196.9 1,688.9 3,527.7 4.0 -1.0 2.6 -9.6 -4.2 Machinery and Equipment 206.9 172.8 -16.5 1,807.2 1,868.5 3.4 59.8 109.6 -808.8 53.2 124.2 -494.3 -11.0 13.4 -38.9 878.0 519.7 992.8 1,134.8 -7,677.3 -7,215.7 Transport Equipment Building Materials Deficit in the Trade Account < Research & Development Unit > -40.8 14.3 -6.0 Source:: CBSL Earnings from exports in October, 2013 reached the highest ever monthly value recorded in the history of Sri Lanka’s exports. The YoY increase of exports in October, 2013 was the highest growth rate recorded since May 2011. Earnings from industrial exports in October 2013, which account for more than 74 % of total exports, increased by 34 % on a yoy basis mainly due to higher export of textiles and garments. Earnings from textiles and garments exports in October, 2013 was the highest monthly value of export of garment and textiles ever recorded. Exports of garments to both the EU and USA recorded remarkable growth rates of 53.2 % and 43.4 % , respectively in October 2013, reflecting the recovery in those economies as well as seasonal demand. Cont…
  14. 14. External Sector (Cont…)  Earnings from rubber product exports increased in October 2013, the highest monthly value since August 2012, led by higher exports of rubber tyres.  Earnings from tea exports recorded a healthy growth of 26.6 % in October 2013 due to combined outcome of a 13.6 % increase in export volumes and an increase in the average export price of tea by 11.4 %. Imports  Expenditure on imports declined in October 2013, due to the significant decline in both intermediate and investment goods imports. Expenditure on intermediate goods imports declined in October 2013 mainly due to the decline in the importation of fuel and textiles.  Despite the strong growth in export of textiles and garments, there has been a steady decline in imports of textile and textile articles, reflecting improved backward linkages and higher value addition in the garment industry.  Vehicle imports, mainly contributed to the increase in consumer goods imports, recording a year-on-year increase of 150.7 % in October 2013. BoP & GOR  During the period from January to October 2013 the overall BOP is estimated to have recorded a surplus of USD 749 mn compared to a deficit of USD 185 mn recorded during the corresponding period of 2012.  Sri Lanka’s gross official reserves amounted to USD 7.1 bn by end October 2013. In terms of months of imports, gross official reserves were equivalent to 4.5 months of imports at end October 2013. Cont… < Research & Development Unit >
  15. 15. External Sector (Cont…)  According to the Export Development Board, 53 new industries were registered during eleven months ending November 30.  23 % of them in apparel and textiles, 22 % in heavy industries such as chemical, petroleum, rubber, and plastic, 17 % in fabricated metals and 14 % in food, beverages and tobacco. < Research & Development Unit >
  16. 16. Snippets - Snippets- Snippets- Snippets- Snippets- Snippets- Snippets- Snippets- Snippets Multinational Relocates to Sri Lanka from China  A top Japanese conglomerate is relocating its selected foam operations to Sri Lanka from China and thanks to the conglomerate’s new operation, Sri Lanka is now saving millions in forex volumes that are otherwise sacrificed on import of soft foam used for apparel.  More importantly, the Tier 1 global supplier also says it is ready to set up world class automotive component production in Sri Lanka – with latest Japanese technology.  “Japanese giant INOAC’s new venture with a $ 20 m investment here is one of the biggest industry FDIs to come from Japan to Sri Lanka in our bilateral partnership history,” said Minister of Industry and Commerce Rishad Bathiudeen on 11 December. First Anantara Resort & Spa in Tangalle A joint venture by Hemas Holdings PLC & Minor Hotel Group Thailand The foundation stone was laid for the first five star Anantara Resort and Spa in Sri Lanka which is scheduled for an early 2015 opening. The project is a joint venture by Hemas Holdings PLC and Minor Hotel Group, Thailand, with an investment of $ 40 mn. Cont… < Research & Development Unit >
  17. 17. Snippets - Snippets- Snippets- Snippets- Snippets- Snippets- Snippets- Snippets- Snippets Sri Lanka Approves Packer's Crown Resort UDA given 65 acres of Colombo Land Sri Lanka has approved Australian Crown Resorts Ltd's USD 400mn complex along with 2-similar projects, but without any explicit permission to operate casinos at them, according to Sri Lanka’s deputy investment minister.  An effort to improve the productive use of lands, the Cabinet has approved a proposal to transfer some 55 acres of crown land within the Colombo City limits to the Urban Development Authority on the basis of a free grant. However, Crown's chief, gambling tycoon James Packer, would still be able to operate a casino in his mixed-development project through his local partner, the minister stated. According to the minister, a new gazette notification has been issued for Packer's joint venture and two similar requests by Sri Lanka's top conglomerate John Keells Holdings and a leading local businessman Dhammika Perera respectively. < Research & Development Unit >
  18. 18. Fed Cuts Bond Buying  The Federal Reserve on Wednesday (18.12.13) embarked on the risky task of winding down the era of easy money, saying the U.S. economy was finally strong enough for it to start scaling down its massive bond-buying stimulus.  The central bank modestly trimmed the pace of its monthly asset purchases, by $10 bn to $75 bn, and sought to temper the long-awaited move by suggesting its key interest rate would stay at rock bottom even longer than previously promised.  At his last scheduled news conference as Fed chairman, Ben Bernanke said the purchases would likely be cut at a "measured" pace through much of next year if job gains continued as expected, with the program fully shuttered by late2014. Source: Reuters < Research & Development Unit >
  19. 19. Yuan Passes Euro as 2nd-Most Used Trade-Finance Currency  China’s yuan overtook the euro to become the second-most used currency in global trade finance after the dollar this year, according to the Society for Worldwide Interbank Financial Telecommunication (SWIFT).  The currency had an 8.66 % share of letters of credit and collections in October, compared with 6.64 % for the euro, Swift said in a statement.  China, Hong Kong, Singapore, Germany and Australia were the top users of yuan in trade finance, according to the Belgium-based financialmessaging platform.  The yuan had the fourth-largest share of global trade finance in January 2012 with 1.89 %, while the euro’s was the second-biggest at 7.87 %, Swift said. Source:: Bloomberg < Research & Development Unit >
  20. 20. European Union Loses AAA Rating From S&P on Weaker Cohesion The European Union lost its top credit rating from Standard & Poor’s, which said the group’s cohesion has weakened and its financial profile has deteriorated. S&P cut its long-term rating on the EU to AA+ from AAA and maintained its short-term rating at A-1+. The outlook is stable. “The downgrade reflects our view of the overall weaker creditworthiness of the EU’s 28 member states,” S&P stated. The reduction follows ratings cuts in recent years on EU members including France, Italy and Spain, as a sovereign-debt crisis roiled the region. Source:: Bloomberg < Research & Development Unit >
  21. 21. RBI Talks Tough on Inflation, yet Holds Rates for Now  The Reserve Bank of India (RBI) kept talking tough on inflation despite unexpectedly holding its policy interest rate unchanged on Wednesday (18.12.13), saying it will be ready to act even if the country struggles to raise its low growth rate.  The RBI's decision to keep the repo rate at 7.75 % surprised investors, who had widely expected the central bank to hike the main lending rate after raising it by a quarter percentage point each at its previous reviews in September and October.  Instead, the RBI noted that prices of vegetables, which are driving the inflation rate higher, are easing, while highlighting "the weak state" of the economy and the uncertainty posed by a possible withdrawal in U.S. monetary stimulus. "I want to emphasise we are not being soft on inflation," RBI Governor Raghuram Rajan told reporters at a news briefing after the decision. "I also want to emphasise that it shouldn't be taken that we're on hold. We are waiting for data. Hence as the data come in, we will react appropriately," he added.  Rajan, a former finance minister adviser, has made fighting inflation a priority since his appointment in Source:: Reuters September. < Research & Development Unit >
  22. 22. 2014  South Sudan, which split from Sudan in 2011, has room to grow, supported by oil reserves.  Mongolia is buoyed by a mining boom, while Sierra Leone, Turkmenistan, TimorLeste and Zambia are favoured by what they extract from below—mainly iron ore, gas, oil and copper, respectively.  Bhutan’s boon is hydroelectricity exports to India; Macau’s is its casinos.  Libya and Iraq are rebuilding after conflict, though stability remains elusive.  What most of these countries have in common is size, or lack of it. Source: The Economist < Research & Development Unit > Source:: The Economist
  23. 23. The New Asian Economic Superstars 2014 Asia’s biggest emerging economies, China and India, are not as dynamic as they used to be, but the region will still have star performers in 2014. Three of Asia’s more exotic economies—Mongolia, Macau and Bhutan—will be among the world’s fastest growers.  Many Mongolians are herders, but much of the country’s cash now comes from mining. The first full year of output at Oyu Tolgoi, a giant copper and gold mine, will push GDP growth to 15% in 2014. It might have been faster but for the slowdown in China, Mongolia’s biggest export market.  Macau, Asia’s playground and politically part of China, will grow by 14%. Gambling is Macau’s lifeline: punters will wager around $50 billion in 2014, nearly ten times more than a decade earlier and far more than in Las Vegas. Much of the money will come from high-rollers from mainland China.  Bhutan, inventor of “gross national happiness”, sends plenty of hydroelectric power to India. Several new hydropower projects are on the cards, which will help push GDP growth—a very unBhutanese concept— to 9% in 2014. Poverty remains high, so efforts to channel more of the hydro income to the poor should make a few more Bhutanese happy. Source: Economist Intelligence Unit < Research & Development Unit >
  25. 25. Credit Expansion  In October 2013,credit extended to the private sector increased by Rs. 27.2 bin in absolute terms.  Credit from Domestic Banking Units (DBUs) of commercial banks contributed around Rs. 20.1 bn to the absolute increase in credit during the month, similar to the levels witnessed in September 2013, signalling a take-off in credit disbursements.  Credit granted to public corporations contracted for the second consecutive month, with repayments during October 2013 amounting to Rs. 12.5 bn.  Meanwhile, broad money growth accelerated to 18.3 % (y-o-y), with increased credit to the private sector as well as a significant increase in net foreign assets (NFA) of the banking sector and increased net credit to government (NCG) during the month. NCG is expected to decline in line with the revised projections for bank borrowing as presented in the National Budget for 2014. < Research & Development Unit >
  26. 26. Interest Rates Interest rates recorded downward trend in response to relaxation of monetary policy. < Research & Development Unit >
  27. 27. Exchange Rate Several Asian currencies depreciated against USD in 2013
  28. 28. We wish all of you a Peaceful Christmas and a Meaningful New 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