The document provides an economic update for Sri Lanka with the following key points: - Commercial Bank was ranked the third most valuable brand in Sri Lanka and the highest ranked private sector brand, with a brand value of Rs 22.32 billion. - Commercial Bank partnered with the European Investment Bank to provide financing under a SME Green Energy Credit Line for projects including SMEs, energy efficiency and renewable energy. - The financial sector consolidation process in Sri Lanka is on track, with nine audit firms selected to evaluate banks and NBFIs and all institutions submitting merger and acquisition proposals by the March 31st deadline. - Fitch affirmed Sri Lanka's long-term foreign currency issuer default rating at '

1. Economic Capsule
April 2014
Research & Development Unit

2. ECONOMIC & BUSINESS NEWS 
 Commercial Bank Ranked Most Valuable Private Sector Brand in Sri Lanka
 Commercial Bank Partners EIB Credit Line
 Financial Sector Consolidation Update
FINANCIAL SECTOR NEWS 
 Fitch: Sri Lanka Credit Overview
 Fitch Affirms Sri Lanka at ‘BB-’; Outlook Stable
 Leading Exporters and Importers in World Trade in Commercial Services
 Sri Lanka gets Natural Disaster Credit from World Bank
ANALYSIS & FORECAST
 Medium Term Macroeconomic Framework
 IMF World Economic Outlook
C O N T E N T S

3. B a n k i n g N e w s

4. < Research & Development Unit >
Commercial Bank Ranked Most Valuable
Private Sector Brand in Sri Lanka
Commercial Bank has been ranked the third most
valuable brand in Sri Lanka in the 2014 rankings
compiled by Brand Finance Lanka and published in
the LMD Brands Annual for the year.
Moving up two places from last year to become the
highest ranked private sector brand on this prestigious
list amongst all corporate brands in the country, Sri
Lanka’s largest private bank has been assigned a
brand value of Rs 22.32 billion through an independent
analysis by Brand Finance.
The Bank has been rated AAA- by Brand Finance
Lanka and recorded the highest growth of 47% over
2013 among the top companies listed in the rankings.

5. < Research & Development Unit >
Commercial Bank
Partners EIB Credit Line
Commercial Bank has entered in to an agreement with the European Investment Bank
(EIB) to finance Small and Medium Enterprises (SMEs), Energy Efficiency (EE) and
Renewable Energy (RE) projects under the EIB SME Green Energy Credit Line extended to
the Government of Sri Lanka.
 The minimum project size eligible for SME financing will be Rs 18 mn and Rs 90 mn for projects
in the Energy Efficiency and Renewable Energy categories. Up to 50% of the project could be
considered for financing under this credit line, and beneficiaries can obtain facilities for a longer
repayment period and enjoy an attractive lending rate of 8% p.a.
 Construction, renovation or extension of factories or commercial buildings, procurement of
machinery, and incremental working capital are the key activities eligible for financing under this
credit line.

6. < Research & Development Unit >
Financial Sector Consolidation Update
 According to Central Bank Assistant Governor C.J.P. Siriwardana the consolidation process of the
country’s banking and finance sector is on track with considerable progress so far.
 Nine audit firms selected by the CB to carry out valuations on the banks and Non-Banking Financial
Institutions (NBFI) will finalise and submit their reports on 2 May 2014.
 There will be an intervention by the CB if companies fail to find partners. This will take place at the
final quarter of the year, but till then CB will not get involved according to Mr. Siriwardana.
 The banking sector is comprised of 21 local banks and 12 foreign banks, whereas NBFIs include 49
finance companies and nine leasing companies. Banks and NBFIs account for 64% of the entire
financial system assets where banks hold 57% and NBFIs 7%.
 He has stated that with 31 March 2014 as the deadline for all banks and NBFIs to submit their
proposals regarding prospective mergers and acquisitions, all institutions have complied.

7. E c o n o m i c & B u s i n e s s N e w s

8. < Research & Development Unit >
Fitch: Sri Lanka Credit Overview
The rating is supported by relatively strong growth, a comparatively high level of basic
human development (as indicated by the UN Human Development Index), and a solid
payment record.
Rating factors Status Trend
Public finances Weakness Stable
Macroeconomics Neutral Stable
Structural issues Neutral Stable
External finances Weakness Stable
Key rating drivers:
 Upside: sustained improvement in both the public
and external finances.
 Downside: an intensification in external financing
risks, an extended period of overheating, or a
significant deterioration in public finances.
Key assumption: political landscape remains
broadly stable, and no renewal of the civil conflict.
Source: Fitch

9. < Research & Development Unit >
Fitch Affirms Sri Lanka at ‘BB-’;
Outlook Stable
Key rating drivers:
Real GDP growth is relatively high and less volatile compared with its peers.
Fitch expects real GDP growth to stabilise in 2014 at the recorded 7.3% in 2013 and to rise to 7.5% in 2015. A pick-up in
tourism will continue to support growth.
Official data do not point to overheating of the economy, as inflation (4.2% in March) and credit growth (4.4% in February)
are low. However,
average inflation over the past five years has been high (6.2%) and volatile compared with peers (5.0% median for the 'BB'
peer group) and the potential for a build-up of future imbalances exists. The authorities' pro-growth bias is illustrated by
persistent "twin deficits" and easing monetary policy measures since December 2012, even at high real GDP growth levels.
The public finances are weak relative to peers despite fiscal consolidation.
Both the budget balance (-5.9% of GDP in 2013) and government debt burden (78.3% of GDP in 2013)
are more than double the 'BB' category medians of -2.7% and 35.9% of GDP, respectively. The 2014 budget signals
commitment to medium-term debt reduction to maintain a gradual fiscal consolidation path, although the process is slow and to
a large extent built on revenue projections that may turn out too optimistic.
Cont…

10. < Research & Development Unit >
Fitch Affirms Sri Lanka at ‘BB-’;
Outlook Stable (cont…)
Key rating drivers: (cont…)
The current account deficit has fallen from 6.7% of GDP in 2012 to 3.9% in 2013 and is expected by Fitch to narrow further to
3.2% by 2015 due to solid income from tourism and remittances.
External liquidity is weak, as illustrated by a low liquidity ratio (84.4%) and lower foreign exchange reserves (3.6 months of current
external receipts) compared with 'BB' peer group medians (139.5% and 4.3 months respectively).
Quantitative easing (QE) by the U.S. Federal Reserve has so far not led to severe market pressures for Sri Lanka.
The country benefitted less than many other emerging markets from the QE-related search for yield given its relatively closed
capital account. The government has been able to secure some US dollar financing through issuance on the bond markets twice in 2014.
The level of basic human development, including education, health and literacy, is relatively high, as indicated by a favourable UN
Human Development Index score (Sri Lanka ranks 92 out of 187 countries, better positioned than all other South Asian and most Southeast
Asian countries).
Banks' performance is supported by high real GDP growth and monetary easing, but the non-performing loan ratio (NPL ratio) for the
banking system was relatively high at 5.6% in 2013, and it may rise further to more than 6% in 2014. However, the banking sector is not
very large relative to the economy, with the credit to GDP ratio at only around 40% at end-2013. Rapid credit growth in the past elevated Sri
Lanka into the highest '3' category of Fitch's Macro-Prudential Indicator.
Source: Fitch

11. < Research & Development Unit >
Leading Exporters and Importers in World
Trade in Commercial Services
(Excluding *Intra-EU Trade 2012)
*The quantity of goods exchanged between the Member States of the EU (intra-EU trade) and between the Member States and third countries (extra-EU exchanges)
*
Source: WTO, Standard Chartered Research

12. < Research & Development Unit >
 Sri Lanka has been given a USD 102 mn credit line that can be drawn
immediately after a natural disaster, as well as another USD 110 mn for
measures to cut disaster risk, from the World Bank.
 According to the lender Sri Lanka is the first county in South Asia to gain
access to its new Catastrophe Deferred Drawdown Option, which can be
drawn down fully or partially as soon as a state of emergency is declared
after a natural disaster.
Sri Lanka gets Natural Disaster Credit from World Bank

13. Analysis & Forecast

14. < Research & Development Unit >
Medium Term Macroeconomic
Framework
Indicator Unit 2012 2013
Projections
2014 2015 2016 2017
Real Sector
Real GDP Growth % 6.3 7.3 7.8 8.2 8.3 8.4
Per Capita GDP US$ 2,922 3,280 3,718 4,243 4,825 5,485
Total Investment % of GDP 30.6 29.6 31.0 32.0 33.1 34.0
National Savings % of GDP 24.0 25.7 28.4 31.1 33.2 34.2
External Sector
Exports US$ mn 9,774 10,394 11,854 13,671 15,915 18,521
Imports US$ mn 19,190 18,003 20,218 21,630 23,242 25,023
Current Account Balance % of GDP -6.7 -3.9 -2.5 -0.9 0.1 0.2
Overall Balance US$ mn 151 985 1,510 2,185 2,967 3,606 Cont…

15. < Research & Development Unit >
Medium Term Macroeconomic
Framework (cont…)
Indicator Unit 2012 2013
Projections
2014 2015 2016 2017
Fiscal Sector
Total Revenue and Grants % of GDP 14.1 13.3 14.8 15.5 16.6 16.8
Expenditure and Net Lending % of GDP 20.5 19.2 20.0 19.9 20.4 20.6
Current Account Balance % of GDP -1.0 -0.8 1.1 1.6 2.3 2.3
Overall Budget Deficit % of GDP -6.5 -5.9 -5.2 -4.4 -3.8 -3.8
Government Debt % of GDP 79.2 78.3 74.3 70.6 65.0 62.0
Financial Sector
Broad Money Growth (M2b) % 17.6 16.7 14.0 14.0 14.0 14.0
Growth in Credit to the Private Sector % 17.6 7.5 14.0 15.0 15.0 15.0
Source: CBSL Annual Report 2013

16. < Research & Development Unit >
IMF World Economic Outlook
% change 2012 2013
Projections
2014 2015
World Output 3.2 3.0 3.6 3.9
Advanced Economies 1.4 1.3 2.2 2.3
United States 2.8 1.9 2.8 3.0
Euro Area –0.7 –0.5 1.2 1.5
Japan 1.4 1.5 1.4 1.0
United Kingdom 0.3 1.8 2.9 2.5
Emerging and Developing Asia 6.7 6.5 6.7 6.8
China 7.7 7.7 7.5 7.3
India 4.7 4.4 5.4 6.4
World Trade Volume (goods and services) 2.8 3.0 4.3 5.3
Imports
Advanced Economies 1.1 1.4 3.5 4.5
Emerging Market and Developing Economies 5.8 5.6 5.2 6.3
Exports
Advanced Economies 2.1 2.3 4.2 4.8
Emerging Market and Developing Economies 4.2 4.4 5.0 6.2
Consumer Prices
Advanced Economies 2.0 1.4 1.5 1.6
Emerging Market and Developing Economies 6.0 5.8 5.5 5.2
GDPGrowthForecasts
(Annualizedquarterlypercentchange)
Source: IMF

17. 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.