This document summarizes recent economic and banking news from Sri Lanka. It discusses Commercial Bank's results and branch openings. It notes Fitch downgrading Sri Lanka's credit rating to B+ with a negative outlook due to high debt levels and weaknesses. Inflation is rising in Sri Lanka driven by increases in core inflation. The trade deficit widened in 2015 as exports declined while imports saw a smaller drop. Moody's also cut China's outlook to negative due to rising debt and policy uncertainties.

1. Economic Capsule
February 2016
Research & Development Unit
230th
Issue

2. C O N T E N T S
BANKING AND FINANCE 
 Group Results for the year ended 31 December 2015
 CBC Branch Openings
 Commercial Bank Adjudged Best Among Banks for Sustainability Reporting
 Commercial Bank wins ‘Asia’s Best Integrated Report’ Award
 Commercial Bank Announces Debenture Issue of Rs 5 bn. with Option to Increase to Rs 7 bn
 Fitch Takes Rating Actions on Sri Lanka Financial Institutions on Sovereign Downgrade
ECONOMY & BUSINESS 
 Fitch Downgrades Sri Lanka to 'B+'; Outlook Negative
 Rising foreign deposits, debt add to Sri Lanka external weakness: Moody's
 CBSL Increases its Policy Rates
 Inflation
 External Sector Performance 2015
 Moody's Cuts China Outlook

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

4. 4< Research & Development Unit >
Commercial Bank Group Results for the
year ended 31 December 2015
Profit Before Tax Profit After Tax Due to other
Customers
Loans and Receivables to
other Customers

5. 5
CBC Branch Openings
# 248 - Supermarket Banking Unit
at the Laughs Supermarket
Delgoda
Opening of the branch by Commercial Bank’s Assistant General Manager Personal Banking II Mr Niran
Costa.
# 247 - Galle City Minicom Branch # 249 - BIA’s Departures Terminal
Opening of the Commercial Bank branch at the BIA Departures Terminal by the Bank’s
Assistant General Manager Operations Mr Palitha Perera
Commercial Bank opened a second branch at the Bandaranaike International Airport
(BIA) Katunayake, to serve the foreign currency needs of passengers using its
Departures Terminal. The new branch will be open around the clock, 365 days of the
year. In October last year, the Bank opened a similar branch at the airport’s
Arrivals Terminal.
< Research & Development Unit >
Cont..

6. 6< Research & Development Unit >
CBC Branch Openings (cont..)
Commercial Bank ‘s 250th service point is located within the Orion City complex at Dr. Danister de Silva Mawatha, Colombo 9,
the new branch represents the Bank’s commitment to deploy the latest in secure technology to enhance convenience to
customers and promote eco-friendly operations. Modelled on the Automated Banking Centre set up by the Bank at Ward
Place, Colombo 7, this self service branch will facilitate real time cash deposits, sending of requests for account opening and
loans, cheque deposits, access to the Bank’s Online Banking facility, fund transfers, cash withdrawals, bill payments and will
also provide information services such as branch locations and interest rates throughout the day.
250th
service point opened at Orion City
The Chairman of the Bank Mr. Dharma Dheerasinghe formally inaugurated the
new branch.

7. 7< Research & Development Unit >
Commercial Bank Adjudged Best Among
Banks for Sustainability Reporting
 The Sustainability Report of the Commercial
Bank of Ceylon PLC has been adjudged the best
in the Banking Sector at the 2015 Sri Lanka
Sustainability Reporting Awards presented by
the Association of Chartered Certified
Accountants (ACCA) Sri Lanka Liaison Office.
 One of five key segments in the Bank’s Annual
Report for 2014, the Commercial Bank
Sustainability Report is a comprehensive 57-page
account covering the economic, social and
environmental performance of Sri Lanka’s largest
private bank for the fiscal year ending December
31, 2014.
 The entries were judged on the triad of 3Cs -
Completeness, Credibility and Communication.

8. 8< Research & Development Unit >
Commercial Bank wins ‘Asia’s Best
Integrated Report’ Award
 Commercial Bank’s 2014 Annual Report was
adjudged ‘Asia’s Best Integrated Report’ at the
Asia Sustainability Reporting Awards in
Singapore.
 The Commercial Bank was the only Sri Lankan
company to be awarded at this prestigious
event. The award ceremony recognised
companies under 14 awards categories and one
winner was declared for each category.
 Organised by CSR Works International,
Singapore’s leading sustainability advisory,
research and training firm, the Asia Sustainability
Reporting Awards attracted 180 entries from
companies in Hong Kong, China, Japan, India,
Taiwan, Malaysia, Thailand, Sri Lanka, the Middle
East, Indonesia, Singapore and the Philippines.

9. 9< Research & Development Unit >
Commercial Bank Announces Debenture
Issue of Rs 5 bn. with Option to Increase to
Rs 7 bn
 Commercial Bank announced plans to raise Rs 5 bn via a debenture issue with an
option to increase it by a further Rs 2 bn, for the growth of the Bank’s lending portfolio
and to further strengthen its balance sheet.
 The listed, rated, unsecured, subordinated, redeemable debenture issue opened on
29th February.
 The Bank will offer two types of debentures, Type A with a five year tenure and Type B
with a 10 year tenure.
 The five-year debentures will carry a fixed interest rate of 10.75% p.a. (AER 11.04%)
payable semi-annually, while the ten-year debenture will offer a fixed interest rate of
11.25% p.a. (AER 11.57%), also payable semi-annually. The investors’ return is further
enhanced by the tax concessions applicable to listed debentures.

10. 10< Research & Development Unit >
Fitch Takes Rating Actions on Sri Lanka
Financial Institutions on Sovereign
Downgrade
 Fitch Ratings has downgraded the Issuer Default Ratings (IDR) of Bank of Ceylon
(BOC) and National Savings Bank (NSB) to 'B+' from 'BB-' and downgraded the IDRs
of People's Leasing & Finance PLC's (PLC) IDRs to 'B' from 'B+'.The IDRs of DFCC
Bank PLC (DFCC) were affirmed at 'B+'.
 The Outlooks on all the IDRs are Negative to reflect the Negative Outlook on the
sovereign.
Fitch maintains a stable sector outlook for the Sri Lankan banking sector for 2016 as
Fitch do not expect the sector's credit profile to deteriorate materially even though
operating conditions could become more challenging.
The operating environment remains a key rating driver for the Sri Lankan banking
sector given its potential volatility.

11. Condominium Industry
in Sri Lanka
October, 2014
Research & Development Unit
Economy & Business

12. 12< Research & Development Unit >
Fitch Downgrades Sri Lanka to 'B+';
Outlook Negative
Fitch Ratings has downgraded Sri Lanka's Long-Term Foreign- and Local-Currency Issuer Default
Ratings (IDRs) to 'B+' from 'BB-'.
A Negative Outlook has been assigned to the IDRs.
The issue ratings on Sri Lanka's senior unsecured foreign- and local-currency bonds are also
downgraded to 'B+' from 'BB-'. The Country Ceiling is downgraded to 'B+' from 'BB-' and the Short-
Term Foreign-Currency IDR is affirmed at 'B'.
The rating action reflects the following key rating drivers:
Increasing refinancing risks
Significant debt maturities
Weaker public finances
Decline in foreign-exchange reserves
Foreign-currency debt portion remains high Cont..

13. 13< Research & Development Unit >
Fitch Downgrades Sri Lanka to 'B+'; Outlook
Negative (cont..)
 Increasing refinancing risks: The Sri Lankan sovereign faces increased refinancing risks on account of high
upcoming external debt maturities. Further, the sovereign's external liquidity position (70.9% in 2015)
remains strained, reflecting pressure on foreign exchange reserves.
 Significant debt maturities: Sri Lanka faces significant debt maturities in 2016 amid the country's
vulnerability to a shift in investor sentiment. Fitch estimates the sovereign's external debt service to be
close to USD4bn for the rest of 2016, compared with FX reserves of USD6.3bn (end-January 2016).
 Weaker public finances: The deterioration in Sri Lanka's fiscal finances is driven partly by consistently low
general government revenues. At an estimated 13% of GDP, Sri Lanka's gross general government
revenues remain far below the 'B' median of 25.4% and the 'BB' median of 26%.
 Decline in foreign-exchange reserves: While the authorities have undertaken certain measures to support
external finances, including entering into bilateral swaps with other central banks, Fitch does not view this
to be a sustainable way to improve the stability of the external finances.
 Foreign-currency debt portion remains high: Sri Lanka has also increased its issuance of foreign-currency
debt, which Fitch estimates now makes up close to 46% of total public debt, up from nearly 42% at the
end of 2014. This has increased vulnerability of Sri Lanka's public debt to a significant depreciation of the
exchange rate, which would increase the debt burden in local currency terms. Cont..

14. 14
Fitch Downgrades Sri Lanka to 'B+'; Outlook
Negative (cont..)
Rating Sensitivities
The Negative Outlook reflects the following risk factors that could, individually or collectively, result in a downgrade of the ratings:
A further increase in external vulnerability driven by a sustained decline in FX reserves reflecting, for instance, reduced
international market access and/or a sudden reversal in portfolio inflows.
A further deterioration in policy coherence and credibility that widens macroeconomic imbalances and/or heightens external
vulnerabilities.
Continued fiscal slippage resulting in a failure to stabilise the general government debt ratio
The main factors that could, individually or collectively, lead to a revision of the Outlook to Stable are:
Implementation of a predictable and robust policy framework leading to a reduction in risks to basic economic and financial
stability.
Improvement in Sri Lanka's public finances underpinned by a credible medium-term fiscal consolidation strategy, including a
broadening of the general government revenue base.
Sustained smaller current-account deficits with higher levels of non-debt capital inflows (FDI) and an increase in foreign
exchange reserves.
< Research & Development Unit >

15. 15< Research & Development Unit >
Rising foreign deposits, debt add to
Sri Lanka external weakness: Moody's
Sri Lanka rising non-resident deposits and foreign debt has increased the country’s
external vulnerability to above that of similar countries in the 'B1' speculative
grade.
Cont..
Moody’s External Vulnerability Indicator (EVI):
Short-Term External Debt + Currently Maturing Long-Term External Debt
+ Total Non Resident Deposits Over One Year
------------------------------------------------------------------------- x 100
Official Foreign Exchange Reserves

16. 16< Research & Development Unit >
Rising foreign deposits, debt add to
Sri Lanka external weakness: Moody's
 Moody's estimated Sri Lanka's external debt burden to have risen to 57 % of gross domestic product in
2015 from 49 % in 2010, when credit conditions were more favourable, and was now left with high
debt repayments.
 "In Sri Lanka, the decline of capital flows has resulted in higher recourse to short-term external
financing and a sizable decline in foreign exchange reserves.“
 ADB has announced a USD 2.0 bn funding package, shortly after the government announced that it
was going to the International Monetary Fund.
 "The sovereign’s recourse to multilateral financing underscores its large external financing needs and
the limited scope for market financing to meets those needs, revealing Sri Lanka’s credit-negative
vulnerability to external event risk," Moody's stated.
 "An agreement with the IMF and financing from the ADB will provide some liquidity and thereby ease
immediate financing pressures. "At the same time, the financing will likely be at more favorable terms
than market borrowing, alleviating debt servicing cost pressures to some extent.“
 According to Moody's over the next three years, an agreement with the IMF can lead to higher tax
collections and low budget deficits which can reduce debt. "Moreover, such an agreement will likely
restore investor confidence in Sri Lanka’s policy framework, and ultimately support more stable
external inflows," the rating agency stated.

17. 17< Research & Development Unit >
CBSL Increases its Policy Rates
Monetary policy was tightened at the end of 2015 in light of rapid money and
private credit growth, excess liquidity, and the deterioration in the external
position.
Accordingly, the CBSL increased the statutory reserve ratio (SRR) by 1.50 % in
January 2016, pushing up intermediation costs of banks.
Central Bank increased its policy rates by 50 basis points effective from 23rd
February
2016 considering the excessive growth of broad money fuelled by domestic credit
expansion in the midst of continued upward trend in underlying inflation.
Previous W.E.F. 16.01.2016
SDFR 6.00 6.50
SLFR 7.50 8.00
Source: CBSL

18. 18< Research & Development Unit >
Inflation
 Headline inflation (as measured by YoY change in
CCPI) increased to 2.7% in February, 2016 from 0.9%
January, mainly due to elimination of effect of price
reduction of few essential food items, L. P. Gas,
Kerosene Oil, Petrol, Diesel and Bus Fare(Budget
Proposals) implemented by the Government in
February 2015. .
 Year-on-year headline inflation based on the
National Consumer Price Index (NCPI, 2013=100)
which recorded 4.2 % in December 2015, sharply
declined to record a negative figure of 0.7 % in
January, 2016.
 Core inflation (which excludes fresh food, energy,
transport, rice and coconut) continued its increasing
trend reaching 4.6 % in January 2016 and 5.7% in
February, 2016, on a year-on-year basis, from 0.8 %
recorded in February 2015. The IMF’s head of recent
mission to Sri Lanka too had raised concerns about
rising core inflation.
Source: CBSL

19. 19< Research & Development Unit >
External Sector Performance 2015
• Earnings from exports during 2015
decreased by 5.6 % to USD 10,505 mn
and expenditure on imports declined by
2.5 % to USD 18,935 mn. Meanwhile
trade deficit widened by 1.7% from
USD 8,286.7 mn in 2014 to 8,429.7 mn
in 2015.
• Lower performance in tea, rubber
products, textile and garments and
seafood exports contributed mainly for
the drop in exports.
• Significant decline recorded in fuel
import bill due to lower oil prices and
lower thermal power generation caused
the decline in import expenditure.
Cont..
 5.6
 2.5

1.7
Source: CBSL

20. 20< Research & Development Unit >
External Sector Performance 2015 (etc.)
• BOP: for the year 2015, the overall
BOP is estimated to have recorded a
deficit of USD 1,489 mn compared to
a surplus of USD 1,369 mn recorded
in 2014.
• GOR: Sri Lanka’s gross official
reserves as at end December 2015
amounted to USD 7.3 bn, equivalent
to 4.6 months of imports.
• Exchange Rate: During 2016 up to
18 February, the rupee
appreciated by 0.1 % against the US
dollar.
 2.2%
 14.5%
 17.7%
 22.6%

0.5%
USD Mn
Source: CBSL

21. 21< Research & Development Unit >
Moody's Cuts China Outlook
Moody's downgraded its outlook on
Chinese government debt to "negative"
from "stable”, citing uncertainty over
authorities' capacity to implement
economic reforms, rising government debt
and falling reserves.
The Moody's downgrade comes just days
before the National People's Congress
(NPC) is due to vote on China's 13th five
year plan, a closely held development
blueprint for the next five years, which
policymakers began formally drafting in
2015

22. 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 >