The document summarizes recent economic news from Sri Lanka including: - Commercial Bank was the largest lender to SMEs in 2020 and received several awards for its banking services. - A Maldivian company will invest $58 million to establish a yacht building facility in Hambantota Port, creating over 200 jobs. - Automobile component manufacturing in Sri Lanka has increased, creating 5,000 new jobs so far and expecting 45,000 more in the next few years. - A US firm expressed interest in investing $3 billion to develop an oil refinery in Trincomalee Harbour.

1. Economic Capsule
December 2019
276th
Issue
Research & Development Unit
Economic Capsule
August 2021
295th Issue

2. C O N T E N T S
BANKING & FINANCE
 CBC Results 30.06.2021
 ComBank becomes biggest lender to SME sector in 2020 among all banks
 ComBank named Sri Lanka’s Domestic Trade Finance Bank of the Year
 ComBank ranked Sri Lanka’s Most Respected Bank for 17th successive year
ECONOMY & BUSINESS
 Maldivian yacht builders to establish facility in Hambantota Port
 5000 new jobs from automobile component manufacturers; 45,000 more
expected
 US firm to develop oil refinery at Trincomalee Harbour site
 Sri Lanka’s Manufacturing PMI – Jul 2021
 Sri Lanka’s Services PMI – Jul 2021
 External sector performance- Jan to Jun 2021 (USD Mn)
 Economic News Snippets
INTERNATIONAL
 IMF warns that inflation could prove to be persistent and central banks
may need to act
 Federal Reserve preparing for taper this year, July minutes show
 Sub-Saharan Africa’s working-age population set to double, revolutionizing
its economy, S&P says
 Soaring demand for the world’s least-liked commodity sees thermal coal
prices jump 106% this year

3. BANKING &
FINANCE

4. Research & Development Unit
CBC Results 30.06.2021

5. Research & Development Unit
ComBank becomes biggest lender to SME
sector in 2020 among all banks
The Ministry of Finance has confirmed that the Commercial Bank of Ceylon was the
biggest lender to Sri Lanka’s SME sector in 2020 among all state-owned, private and
specialized banks in the country, accounting for more than a fifth of all loans in terms
of value and number.
According to the Ministry’s Annual Report for 2020, Commercial Bank lent Rs 163.98bn
or 21.57% of the Rs 759.7bn in loans provided to SMEs by 19 institutions, while the
58,584 loans provided by the Bank represented 23.82% of the total of 245,883 loans
granted in the pandemic-impacted year.

6. Research & Development Unit
ComBank named Sri Lanka’s DomesticTrade
Finance Bank of theYear
The Commercial Bank of Ceylon has been recognised
as Sri Lanka’s ‘Domestic Trade Finance Bank of the
Year’ at the 2021 Asian Banking and Finance (ABF)
Awards under the ‘Wholesale Banking Awards’
category that honours banks that have successfully
handled significant deals or launched innovative
initiatives to deliver exceptional services for their
clients.
This significant accolade was bestowed on Commercial Bank for its initiatives to strengthen customer relationships,
improve service standards, deliver innovative solutions and for being resilient, resisting disruption, and emerging
with a stellar performance in the year reviewed, despite the debilitating effects of the COVID-19 pandemic.
The Bank’s accomplishments in trade finance are underscored by its performance related to key indicators
including (trade) market share, turnover, revenue, credit facilities granted for trade, and trade loans obtained.

7. Research & Development Unit
ComBank ranked Sri Lanka’s Most Respected
Bank for 17th successive year
The Commercial Bank of Ceylon has been ranked the Most
Respected Bank in Sri Lanka for the 17th consecutive year in the
2021 listing of the Most Respected Entities in Sri Lanka compiled by
LMD.
With this latest ranking, the country’s largest private-sector bank
also enjoys the distinction of being among the top five Most
Respected entities in Sri Lanka in every one of the 17 years since the
publication launched the ranking in 2005.
LMD added two new Attributes this year to the 10 by which companies are ranked as part of the survey. Besides the
two debuting Attributes – ‘HR & People Management’ and ‘Crisis Management’ – the survey ranked companies
according to Financial Performance, Quality Consciousness, Management Profile, Honesty, Innovation, Dynamism,
Corporate Culture, CSR & Sustainability, Vision and National Perspective.
Notably, Commercial Bank was ranked among the top 10 corporate entities in Sri Lanka in 2021 in seven of the 12
attributes and was the highest-ranked bank for Financial Performance, CSR & Sustainability and Crisis Management.

8. Economy &
Business

9. Research & Development Unit
Maldivian yacht builders to establish facility
in Hambantota Port
• Maldivian yacht building company, Sea Horse
Yachts (Pvt) Ltd recently entered into an
agreement with the Hambantota International
Port Group (HIPG) to set up a state-of-the-art
yacht building facility at the port.
• The initial investment for the facility which will
be located within the Hambantota International
Port is approximately USD 58mn (Sri Lankan
Rupees 11.5bn) and production is set to
commence by early 2022.
• The project is expected to generate over 200
direct employment opportunities and an
additional 300 indirect employment
opportunities, it said.
Source: Times Business

10. 5000 new jobs from automobile component
manufacturers; 45,000 more expected
Research & Development Unit
At least 5,000 new jobs have been created in Sri Lanka’s Western Province in the past few months by brand-new component
manufacturers while 45,000 more jobs are on the cards, according to the Sri Lanka Automobile Component Manufacturers’
Association (SLACMA).
Earlier this year, the Ministry of Industries together with the stakeholders of the SLACMA launched a Standard Operating
Procedure (SOP) for the Automobile Manufacturing / Assembling Industry and the Automobile Components Manufacturing
Industry in Sri Lanka, the association said in a media release.
Commenting on the developments, association President Dimantha Jayawardena, said, “Industry stakeholders have been working
hard during the intervening period to make maximum use of the new environment that has been created by the launch of the SOP.
In the recent past, many have passed out of the Vocational Training Institute with NVQ Level 4 qualification. Many of them will be
absorbed by the private sector companies involved in the manufacturing of automobile components. In the next two to three
years, we expect the industry to generate around 45,000 jobs.”
The statement said a variety of automobile components are currently being manufactured in Sri Lanka and exported to various
countries. Among them are pneumatic and solid tyres, batteries, rubber components including bushes and carpets, silencers,
seats, radiators, body panels and bumpers even for racing cars, impact sensor switches for seat belts and airbags, and truck
trailers.

11. US firm to develop oil refinery atTrincomalee
Harbour site
Research & Development Unit
A US company has expressed interest in developing a Trincomalee Harbour site and its precincts by setting up a
mega oil refinery at an investment of USD 3bn, an Energy Ministry’s special memorandum has revealed.
The company, whose name is not revealed in the cabinet memorandum, has submitted an unsolicited proposal
to develop the site near the port along with land area, 10 times greater than the Colombo Harbour,
According to the document, the Sri Lanka Port Development Authority’s National Port Development Plan has
identified Tricomalee Port as a strategic harbour to cater for bulk cargo, and port related activities including
heavy industries, tourism and agriculture.
Under this plan an oil refinery project will be implemented on a long term Build, Operate and Transfer Basis
(BOT).
According to the Ministry memorandum, the oil refinery and an investment promotion zone with industrial park
will be established in a 33000 acre land near this port.

12. Sri Lanka’s Manufacturing PMI – Jul 2021
Research & Development Unit
Manufacturing PMI increased further in July 2021 recording
an index value of 57.8 with an increase of 7.4 index points
compared to June 2021. This was mainly attributable to the
increases observed in New Orders, Production, Employment, and
Stock of Purchases sub-indices
The manufacturers cautioned that the uncertainty over
the rapid spread of the COVID-19 virus would hamper the
manufacturing activities in the country. Accordingly,
overall expectations for manufacturing activities for the
next three months deteriorated significantly compared to
the previous month, yet remained above the neutral
threshold.

13. Sri Lanka’s Services PMI – Jul 2021
Research & Development Unit
Signaling a further expansion of Services activity, Services PMI increased
further to an index value of 55.7 in July 2021. This increase was driven by
the increases in new businesses, business activity, backlogs of work and
expectations for activity.
The Index
PMI is calculated as a ‘Diffusion Index’, where it takes values between 0 and 100.
PMI = 50 - sector remained neutral on month-on-month basis
PMI > 50 - sector is generally expanding on month-on-month basis
PMI < 50 - sector is generally declining on month-on-month basis

14. Research & Development Unit
External sector performance- Jan to Jun 2021
Source: CBSL
Category Jan-Jun 2020 Jan-Jun 2021 Growth %
Merchandise Imports 6,431.2 8,227.6 27.9
•Consumer Goods 1,782.1 1,912.3 7.3
•Intermediate Goods 4,166.8 5,950.1 42.8
•Investment Goods 1,715.2 2,147.4 25.2
•Unclassified 10.5 4.9 -53.8
Merchandise Exports 4,412.8 5,699.0 29.1
•Industrial Exports 3,357.1 4,407.7 31.3
•Agricultural exports 1,039.0 1,258.9 21.2
•Mineral exports 9.7 24.9 155.6
•Unclassified 7.0 7.5 8.0
Trade Balance -3,262 -4,316 32.31
Tourism 682 23 -96.7
Worker’s Remittance 2,980 3,324 11.6
The deficit in the trade account widened on a year-
on-year basis by 32.3% during Jan-Jun 2021 period.
Both exports and imports were significantly higher
during Jan- Jun 2021 compared to the same time
period in 2020.
Workers’ remittances recorded a year-on-year
growth during the time period, while earnings from
tourism remained at minimal levels.
(USD Mn)

15. Research & Development Unit
Sri Lanka inks deal for RMB2.0bn loan from
China Development Bank
Sri Lanka has inked a deal for a 2.0bn Renminbi term loan
(about USD 308mn) on August 17, China’s embassy in
Colombo said. The tranche is part of a USD 1.2bn budget
support loans agreed earlier. Two 500 million US dollar
denominated loans were given in April 2021 and March
2020.
Economic News Snippets
Sri Lanka foreign reserves drop to USD 2.83bn after
bond repayment, liquidity injections
Sri Lanka’s gross official reserves dropped to 2,833.5 million US
dollars in July 2021, from 4,060 million in June after a billion US
dollar bond and some other accounts were repaid in July, official
data show.
IMF’s largest SDR allocation in history comes
to effect
The largest allocation of Special Drawing Rights
(SDR) in the history of the International Monetary
Fund (IMF) to the tune of USD 650 billion to all
members came into effect with Sri Lanka eligible to
get USD 578mn or about USD 816mn.
*Special drawing rights (SDRs) are supplementary foreign exchange reserve assets defined and maintained by
the International Monetary Fund (IMF). SDRs are units of account for the IMF, and not a currency per se. They
represent a claim to currency held by IMF member countries for which they may be exchanged.
Freight rates rising sharply
Exporters are incurring higher costs with skyrocketing freight rates and
the crisis is worsening as space on ships is reaching a critical stage.
Space on ships is getting critical and rates have gone up from Far East
ports and when compared to Sri Lanka local exporters quote relatively
lower rates, so ships give space for those that give a better yield, Ceylon
Association of Shipping Agents Chairman Iqram Cuttilan told.
The turnaround time or the time taken to clear a vessel that gets delayed
by 7-8 days in one port causes delays that impact on the space
availability from the Far East to Europe and the US.
COVID-19 is said to be one of the reasons for the increase in rates and
shortage of space available on vessels.

16. International

17. IMF warns that inflation could prove to be
persistent and central banks may need to act
Research & Development Unit
The International Monetary Fund warned that there’s a risk inflation will prove to
be more than just transitory, pushing central banks to take pre-emptive action.
The issue is currently dividing the investment community, which has been busy
contemplating whether a recent surge in consumer prices is here to stay.
In the U.S., the consumer price index came in at 5.4% in June — the fastest pace in
almost 13 years. In the U.K., the inflation rate reached 2.5% in June — the highest
level since August 2018 and above the Bank of England’s target of 2%.
Higher prices increase the chances that central banks will start to curb their ultra-
accommodative monetary policies, such as a tapering of market-friendly stimulus
like asset purchases.
Source: CNBC

18. Federal Reserve preparing for *taper this year, July
minutes show
Source: CNBC
Research & Development Unit
Federal Reserve officials at their July gathering made plans to pull back the pace of
their monthly bond purchases likely before the end of the year, meeting minutes
released Wednesday indicated.
“Looking ahead, most participants noted that, provided that the economy were to
evolve broadly as they anticipated, they judged that it could be appropriate to start
reducing the pace of asset purchases this year,” the minutes stated, adding that the
economy had reached its goal on inflation and was “close to being satisfied” with the
progress of job growth.” Fed officials said.
*Tapering is the theoretical reversal of quantitative easing (QE) policies, which are implemented by a central bank and intended to stimulate economic growth. Tapering refers specifically
to the initial reduction in the purchasing of and accumulation of central bank assets.

19. Research & Development Unit
Sub-Saharan Africa’s working-age population set to
double, revolutionizing its economy, S&P says
The working-age population of sub-
Saharan Africa is set to increase more
than twofold by 2050 to become the
largest in the world, offering
unprecedented opportunity for
economic growth, according to S&P
Global Ratings.
In a report published, the ratings agency
estimated that growth in the working-
age population would add up to three
percentage points to the average
annual GDP growth for the next 10
years across key economies in the
subcontinent.
Source: CNBC

20. Research & Development Unit
Soaring demand for the world’s least-liked
commodity sees thermal coal prices jump
106% this year
Soaring electricity demand, infrastructure woes and
a surge in global gas prices have triggered an
extraordinary rally for the world’s least liked
commodity.
Australian thermal coal at Newcastle Port, the
benchmark for the vast Asian market, has climbed
106% this year to more than USD 166 per metric
ton, according to the latest weekly assessment by
commodity price provider Argus.
The Newcastle weekly index, which stood at a 2020
low of USD 46.18 in early September, now appears
to be closing in on an all-time high of USD 195.20
from July 2008.
Source: CNBC

21. 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.
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