2. CONTENTS
BANKING & FINANCE
ComBank commences acceptance of LankaPay-JCB Cards
ComBank crowned ‘Best Trade Finance Bank in Sri Lanka’ by Asian Banker
FinanceAsia affirms ComBank ‘Best Bank’ in Sri Lanka for 9th time
ECONOMY & BUSINESS
Economy of Sri Lanka grew by 3.7% in the first quarter of 2019
Moody’s Analysis of SL Economy
External Sector: January - April 2019
SL Tourism’s post-Easter Sunday global PR campaign kicks off in July
Tourism sector VAT revised to 7%
Colombo Dockyard delivers biggest-ever vessel
Brandix world first to achieve ‘Net Zero Carbon’ status
INTERNATIONAL
France plans to scrap 1 billion euros of tax breaks for companies
U.S., China rekindle trade talks ahead of Trump-Xi G20 meeting
Bank of Japan holds fire on policy, joins Fed in warning of mounting global risks
4. ComBank commences acceptance of LankaPay-
JCB Cards
Research & Development Unit
• The Commercial Bank of Ceylon has become one of
the first banks in Sri Lanka to have its point-of-sale
(POS) network accept LankaPay-JCB (Japan Credit
Bureau) co-branded cards issued under the national
card scheme programme.
• This follows the integration of Commercial Bank and
the LankaPay Common POS Switch System enabling
the Bank to acquire JCB cards, the only international
payment brand originating from Japan. The POS
machine network of Commercial Bank will gradually
be upgraded to accept both LankaPay-JCB co-
branded cards issued by local banks and JCB cards
issued internationally, the Bank said.
5. ComBank crowned ‘Best Trade Finance Bank in
Sri Lanka’ by Asian Banker
Research & Development Unit
• The Commercial Bank of Ceylon has been awarded
the prestigious title of ‘Best Trade Finance Bank in
Sri Lanka’ at the 2019 Asian Banker Transaction
Awards that recognise achievements in the
competition for market share, product and
operational excellence in the financial services
industry.
• Asian Banker evaluated Commercial Bank’s
achievements in cash management, payments, and
trade finance with an audit-based approach,
before presenting it with this coveted accolade.
The Bank won the same title last year.
6. FinanceAsia affirms ComBank ‘Best Bank’ in
Sri Lanka for 9th time
Research & Development Unit
• One of Asia’s most respected financial publications has reaffirmed, for the ninth time,
its verdict that Commercial Bank of Ceylon is the Best Bank in Sri Lanka.
• Announcing the third set of winners of its Country Awards 2019 from Singapore, Sri
Lanka, South Korea, Taiwan, Thailand and Vietnam, the Hong Kong based FinanceAsia
magazine said that “as ever, the competition was extremely tight, with numerous
financial institutions proving their resilience in the face of volatile financial markets
and a more strenuous regulatory environment.”
• Commercial Bank’s ninth victory at this prestigious annual awards programme is all
the more noteworthy because it has been 11 years since the Bank became the first
entity in Sri Lanka to receive the coveted ‘Best Bank’ accolade.
8. Economy of Sri Lanka grew by 3.7% in the first
quarter of 2019
Research & Development Unit
• Sri Lanka has recorded a growth of 3.7% in Gross Domestic Product in the first quarter of 2019.
• The Agricultural activities further expanded favourably by 5.5% compared to the expansion of 5.1% recorded in the first
quarter of 2018.
• The Industrial activities expanded satisfactorily by 3.0% in the first quarter of 2019 compared to 1.7% recorded in the
first quarter of 2018.
• Service activities reported further expansion of 4.1% during the first quarter of 2019, compared to 5.5% recorded in the
first quarter of 2018. Source: DCS
9. Moody’s Analysis of SL Economy
Research & Development Unit
Projected GDP Growth 2019 – 2.6%
Ratings agency Moody’s revised Sri Lanka’s grow to 2.6% for 2019, down from
3.4% projection made before the Easter Sunday attacks. However, it said
growth could recover to 3.4% in 2020.
External Debt repayment average more than USD 3
billion per year over 2020-24, or around USD 15.4
billion in total
According to Matthew Circosta, a Moody’s Analyst, the primary challenge
facing Sri Lanka is its large external debt refinancing needs over the next five
years, with over USD 3 billion principal payable annually on external
Government debt over 2020-2024.
10. Moody’s Analysis of SL Economy (cont..)
Research & Development Unit
More than half of all its 2019 public external debt paid
off
The Government completed more than half of all its 2019 public external debt
servicing payments in the first four months of the year. It is due to make principal
payments on external debt of around USD 940 million from June to December,
2019.
Foreign exchange reserves to repay its external debt
The Government may also use the country’s foreign exchange reserves to repay its
external debt, as it did for its January and April 2019 bond maturities. Foreign
exchange reserves (excluding gold and SDRs) stood at USD 5.8 billion in May 2019,
and on balance, Moody’s expects them to remain around USD 6 billion over the
next couple of years. But in the absence of offsetting foreign currency inflows and
considering numerous large debt maturities in the next five years, using them to
make repayments would significantly drain reserves and heighten refinancing risk,
putting negative pressure on Sri Lanka’s credit profile.
11. Moody’s Analysis of SL Economy (cont..)
Research & Development Unit
Warns sudden shifts in investor sentiment could affect
availability and cost of funding
According to Circosta, while a range of financing options, including
international dollar bond issuance and loans from bilateral and multilateral
lenders, could support refinancing, the Government is highly vulnerable to
sudden shifts in investor sentiment that could affect the availability and cost
of these funding sources.
Government raising funds to repay loans
The cabinet has approved the raising of Rs. 480 Bn under the Active Liability
Management Act for debt repayments from 2020 to 2029, which is expected
to provide the government with more space to manage debt.
12. Moody’s Analysis of SL Economy (cont..)
Research & Development Unit
Tourism industry
Tourism arrivals declined 7.5% year-on-year in April, following a 4.6% expansion in the first
quarter of 2019. The likelihood of softer demand in other sectors such as retail and
wholesale trade will further weaken economic activity. According to the World Travel and
Tourism Council, tourism and associated industries contributed about 10% of GDP in 2018.
The overall impact on tourism and GDP growth will hinge on how swiftly the Government is
able to restore a sense of security. One mitigating factor is that Sri Lanka’s tourism industry
had just reached the beginning of its low season, which could limit the fall in tourism
receipts, given that more than half of arrivals and earnings come during the high season
between November and March.
Lower income from tourism, which amounted to about USD 4.4 billion in 2018, will
additionally weigh on the current account deficit and hit foreign exchange inflows. Based on
an assumption of a 25% decline in tourist arrivals and some fall in visitor spending, tourism
receipts could fall by USD 1.5 billion.
13. Moody’s Analysis of SL Economy (cont..)
Research & Development Unit
Current account deficit may widen
As part of its financial relief package to the tourism sector, the Government
implemented duty-free imports for security-related equipment, including scanners
and metal detectors. This could push up the country’s import bill, although the
potential for weaker imports from other sectors as a result of softer domestic
demand might offset any increase. Overall, the country as a whole will likely need
to finance a larger current account deficit than authorities previously envisaged.
Political tension
Moody’s also warned political tensions could also resurface before and after the
Presidential Elections scheduled for late 2019 and the Parliamentary Election in
2020, with the potential to interrupt reforms and undermine investor confidence.
“Political tensions could resurface before and after the Presidential Election in late
2019 and a Parliamentary Election in 2020. This could hinder progress on fiscal
consolidation and undermine investor demand for Sri Lankan financial assets.
Political tensions could also hurt GDP growth, particularly if social tensions rise.”
14. Moody’s Analysis of SL Economy (cont..)
Research & Development Unit
Fiscal deficit to remain around 5%
Overall, Moody’s expects fiscal deficits to remain around 5% of GDP in 2019-20,
from 5.3% in 2018, and government debt to stay at about 82% - 83% of GDP
over the next few years, higher than many B- rated sovereigns, and the Sri
Lankan government’s own projection’s.
15. External Sector: January - April 2019
Research & Development Unit
Category Jan- Apr 2018 Jan-Apr 2019 Change (%)
Exports 3,784 3,954 4.5
Textile & apparel 1,667.2 1,831.8 9.9
Tea 478.1 446.2 -6.7
Imports 7,765 6,412 -17.4
Personal vehicles 516.6 217.4 -57.9
Gold 437.3 0.9 -99.8
Trade Balance (net) -3,981 -2,458 -38.2
Earnings from Tourism 1,667(b) 1,704(c) 2.2
Workers’ remittances 2,520 2,171 -13.8
Inflows to the CSE (net) (d) 47 -24 -151.1
Inflows to the Government (gross) 3,526 3,199 -9.3
Summary of External Sector (a)
USD Mn
(a) Provisional (b) Revised based on survey results of SLTDA on average stay period and average spending per day estimates for 2018
(c) This provisional estimate may be revised once the SLTDA releases its survey results for 2019 (d) Include secondary and primary market transactions Source: CBSL
16. SL Tourism’s post-Easter Sunday global PR
campaign kicks off in July
Research & Development Unit
Source: Daily FT 18/06/19
• Sri Lanka Tourism will launch the much-awaited two-month global promotional campaign in July, 2019
with an investment of Rs. 500 million, to position Sri Lanka on the global tourism map which will also
help the industry to bounce back quickly from negative sentiments following the Easter Sunday terror
attacks.
• J. Walter Thompson (JWT) had been chosen as the PR agency to represent Sri Lanka to the global
market. JWT also won the Rs.314 million contract to develop the country’s latest tourism brand and
tagline ‘So Sri Lanka’, which was launched at World Travel Mart in London last year.
• The target markets for the global promotional campaign include Sri Lanka’s biggest tourism source
markets such as India, China, UK, Germany and France.
• According to SLTPB chairman, Kishu Gomes, Sri Lanka will participate in a number of exhibitions and
road shows which will further help to boost the country’s image.
“In addition to the dedicated in-house promotional campaigns, Sri Lanka is also participating at 25
calendar exhibitions, 18 road shows and nine consumer engagement events. Hence all these will give
the impetus that we are looking for to lure more travellers to the country,” he stressed.
17. Tourism sector VAT revised to 7%
Research & Development Unit
• The Finance Ministry has issued a fresh gazette effective
from 1 June, 2019 to revise the VAT percentage charged on
services rendered by a hotel, guest house, restaurant or
other similar business providing similar services registered
with the Sri Lanka Tourism Development Authority (SLTDA)
to 7%, while charging the same percentage on inbound tour
operators and travel agents registered with SLTDA. The
legislation is effective for the period starting from 1 June
2019 and ending on 31 March 2020.
• Although the impact on total State revenues from the lower VAT on tourism trade is slim, as
tourism accounts for only 5% of total VAT income and 1.2% of total State revenue, the
slower economic growth would weigh heavily on the State coffers as the overall economic
activities hobble.
18. Colombo Dockyard delivers biggest-ever vessel
Research & Development Unit
• Colombo Dockyard PLC (CDPLC) on 21st June, 2019 delivered
the first-ever modern Cable Laying Vessel built for Kokusai
Cable Ship Co. Ltd. (KCS) Japan attended by a host of
dignitaries. This is the biggest-ever vessel, price-wise as well
as length-wise, built by Colombo Dockyard in its illustrious
journey of shipbuilding excellence and the first ever ship built
‘in its class’ by Sri Lanka for Japan.
• This Cable Laying Vessel is 113.1 m in length, 21.5 m in
breadth, 8.8 m depth, with a maximum load laying draught of
approx. 7.1 m, and a deadweight carrying capacity of 5,757
DWT, and a speed of 14.5 knots with accommodation facilities
for 80 persons.
• Colombo Dockyard PLC is a flagship investment of Japan and
operates in joint collaboration with Onomichi Dockyard
Company Ltd. of Japan. The Sri Lankan Government
institutions hold more than 35% stake in the company.
19. Brandix world first to achieve ‘Net Zero Carbon’
status
Research & Development Unit
• The Batticaloa factory of Sri Lankan apparel solutions
provider Brandix has become the world’s first
manufacturing facility to achieve ‘Net Zero Carbon’
status, the company said in a statement.
• This signifies that the Brandix factory in Batticaloa has
completely neutralized its environmental impact through
carbon dioxide emissions by being highly energy efficient
and using onsite renewable energy resources.
• Recognized by the World Green Building Council (WGBC),
the ‘Net Zero Carbon’ certification is issued by the
Leonardo Academy and comes in the background of
countries around the world examining ways in which to
minimize their contribution towards drastic climate
change.
21. France plans to scrap 1 billion euros of tax breaks
for companies
Research & Development Unit
• France plans to scrap 1 billion euros (USD 1.1
billion) of tax breaks for companies to help
fund a pledged 5-billion-euro reduction in
personal income taxes, Budget Minister Gerald
Darmanin said.
• The government will finance the remaining
4 billion euros through lower spending.
• Darmanin said 95% of taxpayers would see a
reduction in their income taxes from January,
2019.
Source: Reuters 16/06/19
• In his response to months of anti-government protests, French President Emmanuel
Macron said in late April, 2019 he would cut income tax by a further 5 billion euros. The
planned reduction came on top of a 10 billion-euro package of concessions to protesters
in December, 2018 aimed at boosting the income of the poorest workers and pensioners.
22. U.S., China rekindle trade talks ahead of Trump-Xi
G20 meeting
Research & Development Unit
• China and the United States are rekindling
trade talks ahead of a meeting on 28 - 29
June, 2019 between Presidents Donald Trump
and Xi Jinping, cheering financial markets on
hopes that an escalating trade war between
the two countries would abate.
• Trump said on 18th June, 2019 that teams
from the two sides would begin preparations
for the leaders to sit down at the G20 summit
in Osaka.
Source: Reuters 18/06/19
23. Bank of Japan holds fire on policy, joins Fed in
warning of mounting global risks
Research & Development Unit
• The Bank of Japan (BOJ) kept monetary policy
steady on Thursday, preferring to save its
dwindling ammunition as a darkening global
growth outlook prompts other major central
banks to drop hints of additional stimulus.
• But the BOJ stressed anew that global risks were
increasing as trade tensions and uncertainty over
U.S. economic policies jolt financial markets,
signaling that it, too, is leaning more toward
ramping up - not whittling down - monetary
support.
• As widely expected, the BOJ maintained its short-
term rate target at -0.1% and a pledge to guide 10-
year government bond yields around zero percent.
Source: Reuters 20/06/19
24. 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 >
John Wooden
