Economic Capsule - February 2014


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Economic Capsule - February 2014

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Economic Capsule - February 2014

  1. 1. < Research & Development Unit > Economic Capsule February 2013
  2. 2. ECONOMIC & BUSINESS NEWS   Commercial Bank wins International Award for Social Empowerment  Commercial Bank Beats Tough 2013 with Net Profit of Rs 10.4 bn  Commercial Bank to Broaden its offering in Investment Banking FINANCIAL SECTOR NEWS   Economy Grows 7.3 % in 2013  SLDB Issue Oversubscribed by 3.1 times  External Trade  Inflation  First Segment of Outer Circular Highway Open  Galle-Matara Expressway  Sri Lanka Rich List 2014  Forbes World's Billionaires 2014 ANALYSIS & FORECAST  Interest Rates – S.S. Colombage C O N T E N T S
  4. 4. < Research & Development Unit > Commercial Bank wins International Award for Social Empowerment  The award presented to Commercial Bank is in recognition of the Bank’s contributions to the education sector in Sri Lanka with three nationally-scaled programmes – the donation of IT laboratories to schools, the annual presentation of scholarships and laptops to undergraduates and a programme to promote English literacy among rural children.  These on-going programmes have cumulatively empowered more than 125,000 children and young adults to date, and continue to evolve and grow in scope and reach. The Commercial Bank CSR Trust has won the prestigious Asia Responsible Entrepreneurship Award (AREA) in the sphere of ‘Social Empowerment’ at the 2014 awards held in New Delhi, bringing home yet another major international accolade.
  5. 5. < Research & Development Unit > Commercial Bank Beats Tough 2013 with Net Profit of Rs 10.4 bn  Commercial Bank has reported profit before tax of Rs 14.51 bn for the year ended 31st December 2013, on gross income of Rs 73.16 bn, which was up Rs 9.764 bn or 15.4% over 2012.  Profit after tax at Rs 10.445 bn for the full year, reflected a noteworthy performance amidst tough market conditions.  The success of the Bank’s performance is also reflected in the Group which comprises of the Commercial Bank, its subsidiaries and associates. The Group post tax profit of Rs 10.573 bn represents a growth of 4.88%.  Interest income for the 12 months grew 18.03% to Rs 62.187 bn, while interest expenses increased by 23.63% to Rs 36.879 bn due largely to a greater shift to fixed deposits in the deposit mix. Consequently, net interest income improved by 10.73% to Rs 25.308 bn.
  6. 6. < Research & Development Unit > Commercial Bank Beats Tough 2013 with Net Profit of Rs 10.4 bn. (cont…)  The Bank’s deposit base grew by 15.5% to Rs 451.153 bn as at 31st December 2013, an increase of Rs 60.541 bn over 12 months at an average of more than Rs 5 bn a month. The loan book (total loans and receivables to other customers and banks) increased from Rs 373.543 bn a year earlier, to Rs 419.505 bn, a growth of Rs 45.962 bn or 12.3%.  Commercial Bank’s total assets expanded by Rs 94.864 bn or 18.54% to Rs 606.607 bn at the end of 2013.  The Bank also bettered several other key performance indicator ratios, including its cost/income ratio which improved to 46.32% from 47.02% in 2012; its capital adequacy ratios with Tier I at 13.27% (2012 – 12.64%) and Tier II at 16.91% (2012 – 13.85%), and provision cover, which improved marginally to 45.41% mainly due to additional provisions made.
  7. 7. < Research & Development Unit > Commercial Bank to Broaden its offering in Investment Banking  The Commercial Bank of Ceylon has signalled its intentions to sharpen its focus on the sphere of investment banking, with the re-launch and renaming of its Corporate Finance Unit as ‘Commercial Bank Investment Banking’ to reflect the broader dimensions of the unit.  Commercial Bank Investment Banking is now fully geared to offer a wide spectrum of fund-based and fee-based services, including financial instrument structures such as Securitisations, Project Loans, Syndicated Term Loans and Margin Trading, along with securities such as Custodian Services and Escrow Services, and structuring and management of equity and debt issues.
  9. 9. < Research & Development Unit > Economy Grows 7.3 % in 2013 Sri Lanka's economy grew 7.3 % in 2013, accelerating from 6.3 % in the previous year, the data released by the Census and Statistics Department showed. The 7.3% was slightly higher than the forecast of 7.2% made by the Central Bank in its Road Map for 2014 in January. The average growth from 2006-2013 (eight years) was 6.7%, and from 2010-2013 (four years) was 7.5. The Central Bank is forecasting 7.8% growth in 2014. Meanwhile, the economy expanded 8.2 % in the fourth quarter of 2013 over the same period a year earlier, up from 7.8 % in the previous quarter, the data showed.
  10. 10. < Research & Development Unit > SLDB Issue Oversubscribed by 3.1 times Amount (USD ) Tenur e Bids Received (USD) Amount Accepted (USD) Rate March 2014 60 mn 3 year 187 mn 187 mn USD 6m LIBOR+400 bps (LIBOR rate: 0.3318%) June 2013 50 mn 3 year 90 mn 90 mn USD 6m LIBOR+400 bps (LIBOR rate: 0.4138%) 25 mn 5 year 164 mn 164 mn March 2013 50 mn 3 year 129 mn 129 mn USD 6m LIBOR+400 bps (LIBOR rate: 0.4454%) February 2013 60 mn 3 year 151.12 mn 151.12 mn USD 6m LIBOR+400 bps (LIBOR rate: 0.4649%) Foreign and local commercial banks operating in Sri Lanka subscribed at the March, 2014 auction.  The SLDBs are transferable by endorsement, delivery and registration with the Superintendent of Public Debt of the Central Bank of Sri Lanka. Eligible investors may purchase SLDBs in the secondary market through Designated Agents appointed by the Central Bank of Sri Lanka.
  11. 11. < Research & Development Unit > External Trade Category Jan-Dec 2012 US$ mn Jan- Dec 2013 US$ mn Growth Jan- Dec (%) Exports 9,773.5 10,386.2 6.3 Agricultural Products 2,331.5 2,581.1 10.7 Tea 1,411.9 1,542.2 9.2 Industrial Products 7,371.2 7,741.4 5.0 Textiles and Garments 3,991.1 4,508.3 13.0 Mineral Products 61.3 51.6 -15.9 Imports 19,190.2 17,999.2 -6.2 Consumer Goods 2,995.2 3,182.5 6.3 Intermediate Goods 11,577.6 10,550.2 -8.9 Fuel 5,044.6 4,308.2 -14.6 Investment Goods 4,589.8 4,252.7 -7.3 Deficit in the Trade Account -9,416.7 -7,613.0 -19.2 Workers’ Remittances 5,985.3 6,762.7 13.0 Earnings from Tourism 1,038.7 1,402.1 35.0 The overall BOP is estimated to have recorded a surplus of USD 991 mn during 2013. Sri Lanka’s gross official reserves is estimated to have recorded USD 7.2 bn by end December 2013, and is estimated to be equivalent to around 4.5 months of imports. Source: CBSL
  12. 12. < Research & Development Unit > External Trade (cont…) Source: CBSL
  13. 13. < Research & Development Unit > Inflation CCPI (%) CCPI Core (%) Year on Year (Y-o-Y) Annual Average (A.A) Year on Year (Y-o-Y) Annual Average (A.A) January, 2014 4.4 6.5 3.5 4.4 February, 2014 4.2 6.0 3.1 3.8 According to Central bank, deceleration of inflation in February 2014 was mainly attributed to the moderate increase in the price index over the previous month and the base effect. Within the food category, the price declines were recorded in red onion, big onion, potatoes, eggs and most varieties of vegetables. However, prices of rice, coconut, chicken, milk powder, some varieties of fish and fruits recorded increases. Source: CBSL
  14. 14. < Research & Development Unit > First Segment of Outer Circular Highway Open The first phase of the Outer Circular Highway (OCH) from Kottawa to Kaduwela was declared open by President on March 8, 2014. The 11 km Kottawa - Kaduwela section of the OCH has been constructed at a cost of Rs. 27 bn with financial assistance from Japan.  Phase I Kottawa to Kaduwela 11.0 Km Phase II Kaduwela to Kadawatha 8.9 Km Phase III Kadawata to Kerawalapitiya 9.2 Km The objective of the OCH is to connect the Southern Expressway, the Katunayake - Colombo Expressway and Colombo - Kandy or Colombo-Northern Expressway enabling motorists using these roads to bypass Colombo to reach their destinations.
  15. 15. < Research & Development Unit > Galle-Matara Expressway  Galle-Matara Expressway is to be opened on March 15. The road begins from Pinnaduwa, Galle and ends at Godagama, Matara.  The new road will enable travelers to reach Kaduwela from Matara in one-and-a-half-hours.  According to Economic Development Minister Basil Rajapaksa - after completion the Kaduwela-Galle and Galle-Matara Expressways will become one expressway from Katunayake to Hambantota via the Gampaha, Kalutara, Galle, Matara and Hambantota districts by the middle of this year.  Work on extending the expressway from Matara to Hambantota is scheduled to begin in June. Work on the Northern Expressway has already begun and its first stage will be from Enderamulla to Ambepussa, the second stage from Meerigama to Pallandeniya and the third from Ambepussa to Kandy.
  16. 16. < Research & Development Unit > Sri Lanka Rich List 2014 Rank Name #1 Hari Selvanathan #2 Mano Selvanathan #3 Sohli Captain #4 Dhammika Perera #5 Harry Jayawardena #6 Rajah M. Nanayakkara #6 Mahesh Amalean #8 Sharad Amalean #9 Ajay Amalean #10 Indra Kumar de Silva Source: Rich List Publications
  17. 17. < Research & Development Unit > Forbes World's Billionaires 2014 Rank Name Net Worth (US$ Bn) Age Source Country of Citizenship #1 Bill Gates 76.0 58 Microsoft United States #2 Carlos Slim Helu & family 72.0 74 telecom Mexico #3 Amancio Ortega 64.0 77 retail Spain #4 Warren Buffett 58.2 83 Berkshire Hathaway United States #5 Larry Ellison 48.0 69 Oracle United States #6 Charles Koch 40.0 78 diversified United States #6 David Koch 40.0 73 diversified United States #8 Sheldon Adelson 38.0 80 casinos United States #9 Christy Walton & family 36.7 59 Wal-Mart United States #10 Jim Walton 34.7 66 Wal-Mart United States #1 #2 #3 #4 #5 #6 #7 #8 #9 #10 TOP 10
  18. 18. Analysis & Forecast
  19. 19. < Research & Development Unit > • As anticipated by the authorities, low interest rates may have helped to augment credit growth needed to boost investment and economic activity. • But keeping interest rates at low levels over long periods is found to generate inflation, and thereby defeating the very purpose of relaxed monetary policy – i.e. boosting investment and economic growth. Interest Rates – S.S. Colombage Low Interest Rates InflationCredit Growth Investments Economic Growth Over long period
  20. 20. < Research & Development Unit > Interest Rates – S.S. Colombage (cont…) • The Central Bank seems to have used both the policy interest rates and exchange rate interventions simultaneously as its policy instruments. • Maintaining low interest rates and a stable exchange rate side by side is an impossible task, since part of the excess demand propelled by low interest rates will shift to imported goods thus widening the trade deficit. This compels a depreciation of the rupee. Low Interest Rates Excess Demand  Imports  Trade Deficit Rupee Depreciate
  21. 21. < Research & Development Unit > Interest Rates – S.S. Colombage (cont…) Investment decisions Entrepreneurs take their long-term investment decisions mostly on the basis of long-term interest rates in the capital market. Hence, effectiveness of an interest rate reduction in encouraging investment depends on the link between short and long-term interest rates. This relationship is not well established even in developed economies. It is weaker in countries like Sri Lanka where money and capital markets are severely fragmented. In the circumstances, a reduction in interest rates does not necessarily lead to an increase in productive investments or to accelerate economic growth. The present low interest rate environment in Sri Lanka has resulted in a substantial reduction in real interest rates. The near-zero real interest rates have negative effects on savings. Further widening of the savings-investment gap could be anticipated in the low interest rate environment restraining the country’s growth potential. The gap between domestic savings and investment is filled by foreign savings which are a mirror image of the current account deficit of the balance of payments. Therefore, an increase in savings-investment gap will lead to a rise in the external current account deficit, augmenting the need to borrow more from abroad. This poses an immense threat to sustainability of the balance of payments.
  22. 22. < Research & Development Unit >
  23. 23. 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 DON'T WASTE YOUR PRECIOUS ENERGY ON GOSSIP, ENERGY VAMPIRES, ISSUES OF THE PAST, NEGATIVE THOUGHTS OR THINGS YOU CANNOT CONTROL. INSTEAD INVEST YOUR ENERGY IN THE POSITIVE PRESENT MOMENT.