www.combank.lk

1. Economic Capsule
September 2023
Research & Development Unit
320th Issue

2. CONTENTS
BANKING & FINANCE
 ADB names ComBank its ‘Leading Partner Bank’ in Sri Lanka for 3rd year
 ComBank wins 5 awards at world’s “Oscars” for best annual reports
ECONOMY, BUSINESS & DEVELOPMENT
 New Central Bank Act
 Central Bank - DDO
 SL’s financial institution ratings not affected by sovereign downgrade
 SEC approves new listing board and rules for SOEs
 Sri Lanka ranked as one of best 50 islands in the world for travel in 2023 by Big 7
travel
 News Snippets
GLOBAL UPDATE
 IMF urges G2o pact to boost its resource quota, strengthen world
economy
 New US-backed India-Middle East trade route
 Germany will suffer worst from world economic slowdown, says OECD
 Another big Chinese developer files for US bankruptcy protection
 How reliant is the world on Indian rice exports?
 News Snippets
Research & Development Unit

3. Banking &
Finance

4. Research & Development Unit
ADB names ComBank its ‘Leading Partner Bank’ in Sri
Lanka for 3rd year
Weight
The Commercial Bank of Ceylon has once again been declared
the Asian Development Bank’s (ADB’s) ‘Leading Partner Bank’ in
Sri Lanka for trade and finance transactions, in a significant
reaffirmation of the Bank’s contributions in that sphere to the
national economy.
This is the third consecutive year that Commercial Bank has been honoured with this title at the ADB Trade and
Supply Chain Finance Programme (TSCFP) Awards that recognise the contributions of leading partner banks to
trade in Asia and the Pacific. The 2023 awards ceremony took place in Singapore at Jen Singapore Tanglin by
Shangri-La.
The award was presented to Commercial Bank for recording, with the ADB’s assistance, the highest number of
transactions in Sri Lanka’s trade and supply chain finance domain between 1st July 2022 and 30th June 2023.
Commercial Bank was among 25 banks that were recognised in 15 categories at the ADB TSCFP Awards
ceremony.

5. Research & Development Unit
ComBank wins 5 awards at world’s “Oscars” for best
annual reports
Weight
The 2022 Annual Report of the Commercial Bank of Ceylon has
won five awards at the 2023 MerComm ARC Awards, the world’s
largest annual report competition, widely considered the
“Academy Awards of Annual Reports.”
The Bank won Silver in the ‘Integrated AR & CSR: Non-Traditional Format’ category as well as Silver for ‘Cover
Design’ in addition to two Bronze awards for ‘Interior Design’ and ‘Illustrations’ and an Honours Award for
‘Written Text.’
The ARC Awards competition is unique in that each annual report is judged against itself, based on its success in
communicating its company's story. Judging is based not on corporate profitability nor production, but on the
values of creativity, clarity, effectiveness, and excellence as symbolised by the ARC Awards.

6. Economy, Business
& Development
News
Research & Development Unit

7. Research & Development Unit
New Central Bank Act
Sri Lanka passed the new Central Bank Act, which was drafted with the support of the
International Monetary Fund, ensuring more independence to the country’s monetary
authority. The act was effected from 15 September 2023.
Key takeaways
Governing board (which replaces the earlier monetary board) – The Governing board is charged with the
responsibility of overseeing the administration and management of the affairs of the Central Bank and
the determination of general policy of the Central Bank other than the monetary policy.
The composition of the governing board
• Chairperson – Governor
• Six members who shall have expertise in Economics, Banking, Finance,
Accounting, Auditing, Law or Risk Management.
• The Secretary to the Governing Board who shall be an employee of the Central
Bank shall be nominated by the Governor of the Central Bank
The act places tighter restrictions on printing of money previously done by the Central Bank and now it can be done only
under very limited and exceptional circumstances such as when dealing with a national security issue or global level health
emergency. (only an amount not exceeding 5% of the value of the issued treasury bills can be printed).
In addition, the Central Bank must work according to an inflation target and if it fails to reach it, it has to give reasons in this
regard.
Read more: https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/laws/acts/en/central_bank_of_sri_lanka_act_2023_e.pdf

8. Research & Development Unit
Central Bank - DDO
Central bank, on 14 September 2023 exchanged accepted eligible treasury bonds for Twelve (12) new
step-down fixed coupon treasury bonds pursuant to the Domestic Debt Optimization Program (DDO).
• The percentage of the aggregate outstanding
principal amount of eligible bonds, for which
valid offers have been accepted by the
government, is 37 %, which accounts to Rs.3.2
trillion, out of Rs.8.7 trillion worth treasury
bonds (T-bonds).
• Under the superannuation funds, 84 % of the
aggregate outstanding principal amount of
eligible bonds, as of end-June 2023, has been
accepted.
Read more:
https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/press/pr/press_20230914_settlement_of_exchange_of_accepted_eligible_treasury_bonds_for_twelve_new_step_down_fixed_coupo
n_treasury_bonds_pursuant_to_the_dod_optimisation_programme_e.pdf
T bonds

9. Research & Development Unit
Central Bank – DDO (Cont.)
In accordance with Section 129(2) of the Central Bank of Sri Lanka Act, No. 16 of 2023, outstanding Provisional Advances from the
Central Bank of Sri Lanka (CBSL) to the Government and outstanding Treasury bills purchased by the CBSL in the primary market
were converted into ten (10) step-down fixed coupon* new Treasury bonds and to twelve (12) existing Treasury bills on 21
September 2023.
Read more:
https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/press/pr/press_20230921_conversion_of_outstanding_credits_of_cbsl_to_government_into_negotiable_debt_instruments_under_dd
o_e.pdf
T bills and Provisional Advances from the CBSL
Each series will receive 12.4% coupon semi-annually until the 2nd semi-annual coupon payment date in 2024, 7.5% coupon from the 1st semi-annual coupon payment
date in 2025 to the 2nd semi-annual coupon payment date in 2026 and 5% coupon from the 1st semi-annual coupon payment date in 2027 until the relevant maturity
date.
** International Securities Identification Number
CBSL governor said, this conversion will help drive Treasury Bill rates down soon. Further, this also concludes
the Domestic Debt Optimization process.

10. SL’s financial institution ratings not affected by
sovereign downgrade
Research & Development Unit
Sri Lanka bank ratings are unaffected by the downgrade
of Sri Lanka’s Long-Term Local-Currency Issuer Default,
affirmed Fitch Ratings.
On 14 September 2023, Fitch downgraded the sovereign’s Long-Term Local-Currency
Issuer Default Rating from “C” to “RD” following the completion of an exchange of
treasury bonds for longer-dated ones, which forms a part of the broader domestic debt
optimization program. The exchange of treasury bills held by the Central Bank of Sri
Lanka (CBSL) has yet to be completed.
“We do not believe the completion of the first phase of the restructuring of the sovereign’s local-currency
obligations is likely to trigger a loss of depositor confidence in the banking system, leading to a widespread
default within the financial system, including for non-bank financial institutions (NBFIs),”
– Fitch ratings
Source: Fitch Ratings

11. Research & Development Unit
SEC approves new listing board and rules for SOEs
Capital market regulator, the Securities and Exchange Commission of Sri Lanka (SEC),
has approved the creation of a separate listing board and listing rules at the Colombo
bourse to facilitate the entry of State Owned Enterprises (SOEs) to the Capital Market.
This is in response to the Government’s policy to expedite reforms in SOEs, improve their
overall governance, efficiency, productivity, profitability, and empower them to add greater
value to the economy.
The dismal performance of many SOEs in Sri Lanka have become a heavy fiscal burden upon the
country with significant macroeconomic implications.
Therefore, the SEC believes addressing this issue is crucial in the country’s economic reform
process. By listing on the stock exchange, these enterprises will be able to improve their
internal governance, operating efficiencies and attract foreign and local investor capital.

12. Research & Development Unit
SEC approves new listing board and rules for SOEs
(Cont.)
The new transitionary Board, when launched, will facilitate those SOEs seeking a listing
to do so on a set of new rules which are designed to enable progressive transition from
the initial listing Board to the Main Board or Diri Savi Board.
Source: https://www.sec.gov.lk/wp-content/uploads/2023/09/SEOs-Sep-23.pdf
Salient features of the rules applicable
• Stated capital of not less than Rs. 250 million
• Revenue, net asset and market capitalization tests
• Minimum 3 years operating history
• Time – bound requirements for financial reporting
• A minimum 10% public float with 300 public shareholder requirement

13. Research & Development Unit
Sri Lanka ranked as one of best 50 islands in the world for
travel in 2023 by Big 7 travel
Sri Lanka has been listed as one of the 50 best islands in the
world for travel in 2023 by Big 7 Travel. The island nation was
ranked 13 in the annual round up of the world’s best islands.
“Sri Lanka has been off the tourism radar for a few years now due to economic crises and the pandemic, but
its doors are now wide open. There are a thousand reasons to visit the beguiling island, not least its friendly
people, flavorful food, endless beaches and timeless ruins.
Loop around the island and you’ll tick off tea plantations, elephant filled wildlife parks, thousand-year-old
ruins and endless strips of golden sand,”
– Big 7 Travel

14. News Snippets
Research & Development Unit
Inflations : NCPI – August 2023
Sri Lanka’s inflation measured under the National
Consumer Price Index further dropped to 2.1% in
August 2023 from 4.6% recorded in July 2023 (year-
on-year)
The Core inflation, which excludes volatile items
dropped to 4.1% in August 2023 from 6.3%
recorded in July 2023.
Cabinet nod to remove custom tariffs on electric and hybrid
vehicle components to encourage vehicle assembling
In a bid to encourage assembly of electric and hybrid vehicles in
the country leading to possible future exports, the Cabinet green
light has been granted to remove custom tariffs on components of
electric and hybrid vehicles for companies committing to a
minimum investment of USD 50mn with the Board of Investment
(BOI).
US raises development investment in Sri Lanka by USD 19.2mn via
USAID
The US has decided to extend additional funds worth over USD 19mn
(over Rs. 6bn) to boost the development of Sri Lanka.
This development assistance will support economic growth and
democratic governance activities and demonstrates the ongoing US
commitment to its partnership with Sri Lanka and to building lasting
people-to-people ties
Expanding SL’s digital economy will add USD 15bn to
GDP by 2030: FITIS
The expansion of Sri Lanka’s digital economy will help
boost the country’s Gross Domestic Product (GDP) by
USD 15bn in the coming years, if development efforts
in this regard are consistent, said the Federation of
Information Technology Sri Lanka (FITIS).
Currently, the digital economy contributes USD 3.7bn
to the GDP.

15. Global
Update
Research & Development Unit

16. IMF urges G2o pact to boost its resource quota,
strengthen world economy
Research & Development Unit
“It is vital to increase quota resources for
the International Monetary Fund (IMF)
before year-end”, its chief, Kristalina
Georgieva, said while urging members of
the G20 bloc to deliver on a promise of
USD 100bn a year in climate funds.
Source: Reuters, IMF
In a declaration at the G20 summit in New Delhi, the grouping vowed to tackle debt
vulnerabilities in low and middle-income countries "in an effective, comprehensive and
systematic manner", but offered no fresh plan of action.
"G20 members must lead by example in delivering on the promises of USD 100bn per
year for climate finance, supported by strengthening the multilateral development
banks," Georgieva said in a statement at the end of the two-day summit.

17. New US-backed India-Middle East trade route
Research & Development Unit
US President Joe Biden, along with leaders of India,
Saudi Arabia and the United Arab Emirates, announced
the launch of a new trade route connecting India to
the Middle East and Europe through railways and
ports.
The White House said the project would usher in a
“new era of connectivity.”
Some analysts are saying it will be a direct challenge to China’s Belt and Road Initiative, a multi-trillion-
dollar infrastructure project launched a decade ago by Beijing with the aim of connecting China to the
rest of the world.
Announced at the Group of 20 (G20) summit in India, Biden’s plan also includes the European Union,
France, Italy and Germany. It is comprised of two separate routes – an east corridor linking India to the
Gulf Arab states and a northern corridor connecting the Gulf states to Europe.
Source: CNN

18. Germany will suffer worst from world economic
slowdown, says OECD
Research & Development Unit
Germany is expected to experience the heaviest blow
from a slowdown in the world economy in 2023, the
Organization for Economic Co-operation and
Development has warned.
Source: The Guardian
In downbeat forecasts for the world economy, the Paris-based organization
said Europe’s largest economy was likely to be the only G20 country apart
from Argentina to shrink this year during a wider international slowdown.
Reasons for the slowdown
• The impact of higher interest rates to tackle sky-high inflation after
Russia’s invasion of Ukraine
• Weaker global trade volumes hitting Germany’s manufacturing-heavy
economy
• Weaker growth anticipation of China - an important German trade partner

19. Another big Chinese developer files for US bankruptcy
protection
Research & Development Unit
One of China’s leading property
developers, Sunac, has filed for
bankruptcy protection in the United
States, shortly after winning approval
from its creditors to restructure nearly
USD 10bn worth of debt.
Source: CNN, Reuters
The company filed a petition for Chapter 15 protection with the US Bankruptcy Court for the Southern
District of New York on 19 September 2023.
It’s the second big distressed Chinese developer in weeks to seek such protection: Evergrande made a
Chapter 15 filing in the United States a month ago, after posting losses of USD 81bn in the last two
years.

20. How reliant is the world on Indian rice exports?
Research & Development Unit
Source: Al Jazeera
Global rice prices are at their highest levels
in 15 years, according to the United Nations
Food and Agriculture Organization (FAO).
Cheap domestic rice has made India the world’s largest rice exporter, accounting for nearly 40% of total
rice exports, which is projected to reach 20.5mn tonnes of milled rice exports and 53.8mn tonnes of
total rice exports over the 2022-2023 crop year. India has dominated rice exports over the past decade
due in part to low local prices and high domestic stocks, which allows the country to offer rice at
discounts.
The surge follows India’s announcement
on July 20 that it would cease the export
of non-basmati white rice with immediate
effect. The decision came just days after
Russia halted participation in the Black Sea
Grain Initiative, causing global food
commodity prices to rise.

21. News Snippets
Research & Development Unit
The Federal Reserve left the main U.S. interest rate unchanged on September 20 waiting to see if its historic series of rate
hikes over the last 18 months gets inflation under control. The central bank kept its main policy rate in the range of 5.25%
to 5.50%, citing an easing of economic conditions while also acknowledging that inflation is still higher than its 2% target.
America’s annual rate of inflation jumped in August, to 3.7%, the second month in a row the rate has risen following a
year of consistent declines. Most of August’s increase is explained by costlier petrol, the result of the decision by Saudi
Arabia and Russia to cut oil output. Core rate of inflation, which strips out volatile food and energy prices, dropped in
August to 4.3%.
The oil price is continuing its march towards USD 100 a barrel for the first time in almost a year, creating new inflationary
headaches for central bankers. Brent crude, the international benchmark, has pushed over USD 95 per barrel, the highest
since November 2022. Oil is being driven up by concerns of a supply deficit, following recent output cuts by Saudi Arabia
and Russia, which have been extended until the end of this year.
The European Central Bank raised its key interest rate to a record high of 4% on September 13 but, with the euro zone
economy in the doldrums, signalled that the hike, its 10th in a 14-month-long fight against inflation, was likely to be its last.
The central bank for the 20 countries that share the euro also raised its forecasts for inflation, which it now expects to
come down more slowly towards its 2% target over the next two years, while cutting those for economic growth.
Argentina’s annual inflation rate rose to 124.4%, according to figures released by the government’s statistics agency on
September 13. Experts say that those numbers will put the ruling centre-left coalition on the defensive, as the October 22
general election approaches.

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 >
Sri Lanka: Emerging from the economic crisis…
The Government is in the process of setting up a Holding Company that will eventually
take ownership of SOE assets. This will enable professional management of such assets
and ensure corporate governance standards are upheld. The Holding Company will be
Government owned and will be accountable to the Finance Ministry. These moves
come under governance and legislation reform concerning SOEs.
(Source: Secretary to the Treasury)
The secretary to the treasury has also referred to four other key reforms, i.e. pursuing
cost-reflective pricing, balance sheet restructuring, introduction of competition in key
sectors, and divestment of non-strategic assets