Economic Capsule - April 2018

Economic Capsule
April 2018
256th
Issue
Research & Development Unit
Research & Development Unit

CONTENTS
BANKING & FINANCE
 Commercial Bank awarded grand triple at Asiamoney Banking Awards 2018
 Commercial Bank adjudged ‘Social Media Brand of the Year 2018’ at ACEF global awards
 Commercial Bank honoured by Brand Finance for Top 10 ranking 15 years in a row
 The Future of Banking driven by Technology: CBSL
ECONOMY & BUSINESS
 CBSL Medium Term Macroeconomic Framework
 ADB, WB & CBSL: Sri Lanka Outlook 2018
 Downside Risks to the Outlook: ADB
 Challenges faced by the Sri Lankan Economy: WB
 Recent Economic Developments: World Bank
 Rupee depreciates to historic lows
 Central Bank eases lending rate for first time since April 2015
 Sri Lanka’s USD 2.5bn International Sovereign Bond offering
 Moody’s gives thumbs up for new Inland Revenue Act
 Jetwing expands footprint in Jaffna with North Gate
 Renuka Towers commence construction
 IFC invests in Melwa Hotels to Boost Tourism Infrastructure in Sri Lanka
 Japanese startup plans SL’s first EV plant for smart tuk-tuks
INTERNATIONAL
 IMF World Economic Outlook April 2018
 India needs 8% growth for 30 years to join middle-income group: World Bank
 More than half of world's wealthy expect to live to 100 :survey
 China to develop Bangladesh industrial zone
 Fed leaves interest rates unchanged

< Research & Development Unit >
Commercial Bank awarded grand triple at
Asiamoney Banking Awards 2018
• Best Bank
The award recognises Bank’s profitability in 2017, its growth,
relative out performance of peers, and its ability to adapt to changing
market conditions and client needs.
• Best Bank for Premium Banking Services
The award is a tribute to Bank’s wealth management operations in
Sri Lanka, with an emphasis on how its offering has outperformed
competitors over the review period. The Bank’s strategy in winning
net new assets and client acquisition related to business gains,
initiatives in areas such as relationship management and digital services,
and testimonials from clients contributed to winning this award.
• Best Bank for Corporate Social Responsibility
The award recognises the Bank’s CSR initiatives, achievements and milestones reached in the previous year.
Although charitable and philanthropic initiatives were considered, the award also focused on the Bank providing
financial or market solutions to its customer base.

Commercial Bank adjudged ‘Social Media Brand of the Year
2018’ at ACEF global awards
Commercial Bank won ‘Social Media Brand of the Year 2018’ from the Asian
Customer Engagement Forum’s (ACEF) 7th Global Customer Engagement
Forum.
The award recognises Commercial Bank’s prodigious success in engaging
with potential and existing customers with a largely non-commercial
approach on five social media and messaging platforms – Facebook, Viber,
Instagram, YouTube and LinkedIn.
Commercial Bank honoured by Brand Finance for Top 10 ranking 15 years in a row
Commercial Bank has been honoured by Brand Finance Lanka for being among Sri
Lanka’s 10 most valuable consumer brands for 15 years consecutively, at the
announcement of the country’s Top 100 Brands for 2018.
One of only two organisations out of all corporate entities in Sri Lanka to achieve this
feat, Commercial Bank retained its position at No 4 in the ranking but had the distinction
of achieving the highest growth in its brand value among the Top 5 brands.
Brand Finance assigned Commercial Bank a brand value of Rs 29.315 bn for 2018, up
14.5% from last year, reaffirming the Bank’s status as the largest private bank and the
largest private bank brand in Sri Lanka.

The Future of Banking driven by
Technology: CBSL
Fintechs and telecommunication companies (telcos) in
the recent past have led innovation while radically
altering the financial ecosystem.
They offer personalised solutions for tech-savvy
customers, catering to the changing dynamics of
customers and demand for digital financial services.
Fintechs and telcos have the potential to lessen
barriers to enter into financial services, elevate the
reliance on information driven financial services and
drive the emergence of new business models.
The fast pace of change in fintechs and telcos has made
the business models of banks more challenging and
competitive. During the recent past the banking sector
has been attracted towards the following emerging
technologies: Cont.

The Future of Banking driven by Technology
(cont.)
Open banking: In open banking, third party applications will be permitted to access consented
customer data through Application Programming Interfaces (APIs). This provides greater
convenience and choice in banking by allowing access to different banks through a single electronic
platform.
Cloud computing: Service providers offer data centers so that banks do not require the
maintenance of their own data centers as they have access to on demand processing and storage
facilities. Cloud computing provides cost efficiency, operational flexibility and increased security.
However, privacy of data, uninterrupted accessibility, and implications over national security remain
to be addressed in the adoption process.
Cryptocurrency: Cryptocurrency is a digital asset designed to work as a medium of exchange
that uses cryptography, and operates independent of a central bank.
Regulators are cautious on cryptocurrency due to their associated risks such as monetary
implications, speculative pressure, security breaches, lack of regulations, money
laundering/financing of terrorism risks and tax evasion. Certain regulators have taken a restrictive
approach due to these risks.
Cont.

(cont.)
Electronic onboarding (e-onboarding) and authentication: The face-to-face interaction
when establishing the business relationship has been a salient feature of banking. However, as banks
leverage on technology and customers are unwilling to visit a bank at least once, e-onboarding of
customers is becoming a necessity.
The benefits are obvious; however the challenge would be effective adherence to Anti-Money
Laundering (AML), Countering the Financing of Terrorism (CFT) and Customer Due Diligence (CDD)
requirements.
Distributed Ledger Technology (DLT) and blockchain: DLT is an asset database that can
be shared across a network where participants can have their own identical copy of the ledger.
Blockchain is a variation of DLT where data is organised in blocks. Certain countries are exploring its
usage in compiling credit information, sharing KYC, detecting money laundering and other forms of
illicit finance.
DLT developments, including blockchain, trigger concerns over data privacy and lack of industry
standards.
Cont.

(cont.)
Artificial Intelligence (AI) and big data analytics: AI has enabled the computer programs
to interact and learn to undertake tasks previously done by humans and has enabled faster and
accurate decision making.
Main benefits are enhanced customer personalisation, productivity gains, fraud mitigation, and
better product/service recommendations. This has been complimented by the developments in big
data analytics, allowing the analysis of unstructured data like pictures, voice records, and social
media behaviours.
Source: CBSL Annual Report 2017

CBSL Medium Term Macroeconomic Framework (a)
(a) Based on information available up to mid-April
2018.
(b) Revised
(c) Provisional
(d) The data is based on the base year 2010 GDP
estimates of the Department of Census and
Statistics.
(e) Estimates updated with the latest population
figures.
(f) Total investment, domestic savings and national
savings as a % of GDP in 2016 were revised by the
Department of Census and Statistics from 31.5%,
23.8% and 28.9%, respectively.
(g) The difference between the BOP estimate and
the GDP estimate is due to the time lag in
compilation.
(h) Based on revised GDP estimates for 2016 made
available on 20 March 2018 by the Department of
Census and Statistics.
(i) Year-on-year growth based on end year values.
(j) Based on CCPI (2013=100)
CBSL Annual Report 2017

ADB,WB & CBSL: Sri Lanka Outlook 2018/19
ADB WB CBSL
GDP Growth
2018 4.2 4.8 5.0
2019 4.8 4.5 5.5
Agriculture
2018 6.0 4.0 -
2019 5.6 3.0 -
Industry
2018 3.9 4.3 -
2019 4.5 4.8 -
Services
2018 3.7 4.6 -
2019 4.6 4.6 -
Inflation
2018 5.2 5.0 4.0
2019 5.0 5.0 5.0
Current account balance (share of GDP)
2018 -2.7 -2.5 -2.2
2019 -2.5 -2.7 -2.0
Fiscal Balance (percent of GDP)
2018 - -4.9 -4.8
2019 - -4.1 -3.9
Debt (percent of GDP)
2018 - 78.2 77.4
2019 - 76.6 74.8
Source: World Bank - South Asia Economic Focus Spring 2018, ADB - Asian Development Outlook 2018, CBSL Annual Report 2017
World Bank: Sri Lanka’s outlook remains
favorable, provided the government is
committed to the reform agenda of improving
competitiveness, governance and public
financial management. Together with the IMF
program, these reforms will add to confidence
and support fiscal consolidation efforts.
ADB: Sri Lanka’s growth over the next 2 years
will depend on agriculture and the political
climate as elections approach.
Cont.

Downside Risks to the Outlook: ADB
Downside
risks to the
outlook:
Weather is
an obvious
concern
Political
uncertainty
could damage
investor confidence
& undermine the
reform agenda
Unexpected
large rise in
global
interest
rates or
Volatility in
capital
markets
could sharply limit
planned borrowing
and increase its cost
Source : Asian Development Outlook 2018
Cont.

Challenges faced by the Sri Lankan Economy: WB
(1) Stay on the fiscal consolidation path by broadening and simplifying the tax base and aligning spending with
priorities. This is important given high public debt, SOE debt and guarantees and large gross financing
requirements;
(2) Shift towards a private investment-tradable sector-led growth model by improving trade,
investment, innovation and the business environment;
(3) Right to Information Act for citizens engagement and improve SOE performance & service
delivery; and
(4) Reduce vulnerability and risks in the economy by enhancing disaster preparedness and mitigating the
impact of reforms on the poor and vulnerable with well-targeted spending.
Sri Lanka faces several challenges that increasingly put its future economic growth and stability
at risk, which must be addressed through macro and structural reforms:
Source: World Bank - South Asia Economic Focus Spring 2018

Recent Economic Developments: World Bank
Real GDP Growth - Despite favorable conditions, growth in the
region has reached a plateau
South Asia consumer price inflation - The inflation rates of the larger
countries fall within a narrow range
Official interest rate - Policy rates have remained unchanged,
except in Pakistan and Sri Lanka
Trade balance - The trade deficits of the three biggest countries
are widening
Cont.
Sri Lanka
Sri Lanka
Sri Lanka
Sri Lanka

Recent Economic Developments: World Bank (cont.)
Remittances growth - Remittances flows to Bangladesh are
increasing again
Sri Lanka
Sri Lanka
Foreign direct investment growth
Foreign exchange reserves - International reserves are relatively low in
Maldives and Pakistan
Sri Lanka Sri Lanka
Government Debt - Government debt remains high in many South
Asian countries

Rupee depreciates to historic lows
So far this year
(Up to 02 May 2018)
2.7%
2017
(Full year)
2.6%
During last week
(up to 27 April 2018)
0.9%
During April 1.2%
As at 02 May 2018 157.60/
158.10
Depreciation
against USD
Inter-bank Closing
Spot Rate
Cont.
• The Rupee gained for the first time in seven
sessions on Tuesday (01 May), after hitting a
record low in the previous five straight
sessions.
• According to Reuter reports, Deputy Central
Bank Governor Nandalal Weerasinghe had
stated yesterday (02 May) that the Central
Bank had intervened on Tuesday (01 May)
and Wednesday (02 May) after high volatility.
• Earlier, the Central Bank on Friday (27 April)
had stated that it would intervene to support
the rupee when necessary and that there was
no reason for the rupee to be under pressure
given the country’s record USD10 bn foreign
currency reserves.

Rupee depreciates to historic lows (cont.)
• The rupee will continue to be under pressure due to foreign debt repayments
(capital & interest payments) amounting to approximately USD 3.0 Bn in 2018 and
approximately USD 15 Bn during 2019-22. Further, international borrowing costs
are likely to increase due to expected fed rate hikes in the period ahead.
• Foreign investors have sold government securities worth a net Rs. 288.6 mn up to
25th April, 2018 according to Central Bank data.
• Further, the CBSL has bought around USD 450 Mn from the market so far this year
to boost reserves.
• Boosting reserves is necessary to strengthen the government’s capacity to fulfill
upcoming foreign debt repayments as stated above. The gross official reserves
amounted to USD 9.91 Bn as at 27th April, 2018.
Source: Reuters , CBC –Treasury Dealers Dept.

Central Bank eases lending rate for first time
since April 2015
Citing favourable inflation and
lacklustre growth, the Central Bank
cut the Standing Lending Facility
Rate (SLFR) by 25 basis points to
8.50 % - the first cut in three years -
and maintained the Standing Deposit
Facility Rate (SDFR) at 7.25 % at its
meeting held on 03 April 2018
SDFR 7.25%
Current Policy
Rates
SLFR 8.50%
SDFR
SLFR
• Sri Lanka economy grew 3.1 % in 2017, the slowest since 2001 and well below the 4.5 % pace of 2016.
• The previous rate hikes, aimed at curbing high inflation and fending off pressure on the fragile rupee, along with
tight fiscal measures to meet conditions by the IMF for a $1.5 bn loan have sapped economic growth.
• Credit growth slipped to 14.6 % year-on-year in February, well off a near four-year high of 28.5 % hit in July 2016.
Source: CBSL, Reuters

Sri Lanka’s USD 2.5bn International Sovereign
Bond offering
Amount
USD
1.25 bn
Amount
USD
1.25 bn
Tenor
10 yr
Maturity
April 18
2023
Maturity
April 18
2028
• Sri Lanka’s twelfth US dollar benchmark offering since 2007
• The largest offshore bond offering ever by Sri Lanka
• The Notes have been rated B1, B+ and B+ by Moody's Investors Service, Standard and Poor’s and Fitch
Ratings respectively
• Citigroup, Deutsche Bank, HSBC, J.P. Morgan and Standard Chartered Bank acted as the Joint Lead
Managers and Book runners on this transaction.
Coupon
5.75%
Coupon
6.75%
Final order book
USD 3.0 bn across
235+ accounts
Final order book
USD 3.5 bn across
190+ accounts
Allocation
U.S. - 66%
Europe - 24%
Asia - 10%.
Allocation
U.S. - 65%
Europe - 29%
Asia - 6%.
Investor type
Fund mgrs. – 92%
Insurance & Pension
funds – 5%
Banks – 3%
Investor type
Fund mgrs. – 92%
Insurance & Pension
funds – 5%
Banks – 3%
Tenor
5 yr
Source: CBSL

Moody’s gives thumbs up for new Inland
Revenue Act
Moody’s: New Inland Revenue Act will rationalize the existing income tax structure and help broaden
the income tax base by removing exemptions, a credit positive
Sri Lanka’s government
revenue is lower than
its peers
General government revenue-to-GDP ratio for 2017
Moody’s expect Government Revenue
(as % GDP), to increase as follows;
Tax revenue will be strengthened by improved administration through the rollout of Sri Lanka’s new
technology systems and value-added tax compliance strategies.
0.8%
0.4%
% GDP
% GDP
Cont.

Moody’s gives thumbs up for new Inland Revenue Act (cont.)
Moody’s, however, expect ;
Government
expenditures to
remain flat..
20%
Of GDP
Fiscal Deficit to
narrow.. Reduce debt burden ..
Moody’s further stated that along with the Inland Revenue Act, Sri Lanka will introduce a new Taxpayer
Identification Number system.
“Such initiatives will help to raise tax compliance, broaden the current narrow tax base and improve the
composition of the revenue base by raising the share of direct taxes,”
% GDP % GDP

Jetwing expands footprint in Jaffna with North Gate
North Gate by Jetwing is the
second property in Jaffna
following the launch of
Jetwing Jaffna in 2016.
Renuka Towers commence construction
Renuka Holdings PLC a sub-subsidiary of Galle Face Properties Ltd,
commenced the construction of ‘Renuka Towers’, on a company-owned land
in Colombo 3.
Renuka Tower is a 32-level mixed development project consisting of A Grade
premium office spaces, office amenities, service suites, recreational areas
and ample parking situated in Colombo 3 between the Beira Lake and Galle
Face Green, according to a company stock market filing.

IFC invests in Melwa Hotels to Boost Tourism Infrastructure
in Sri Lanka
IFC, a member of the World Bank Group, is investing USD27 mn in Melwa
Hotels and Resorts towards the development of 3 hotels across Sri Lanka.
The hotels will be operated by Hilton Hotels.
The investment will help Melwa Hotels develop three new hotels outside of
Colombo, in Yala, Kosgoda, and Negombo.
A subsidiary of Melwire Rolling Pvt. Ltd, the company is a new entrant to Sri
Lanka’s tourism sector.
A Tokyo-based high-tech research and development startup is planning Sri Lanka’s
first ever large, industry-scale Electric Vehicle (EV) manufacturing facility, according
to the Industry and Commerce Ministry.
The startup from Tokyo is also setting up international standard EV charging systems
known as “micro-grid” stations across the country, as part of their hi-tech transfer to
Sri Lanka.
A top Japanese investment team consisting of key executives of Tokyo’s Future
Science Research Inc (FSRI), along with high-ranking former Japanese officials, is now
in town for the project’s initial groundwork. The proposed EV manufacturing
operation is to take off by producing Sri Lanka’s first ever smart EV tuk-tuks.
Japanese startup plans SL’s first EV plant for smart tuk-tuks

IMF: Global growth is expected to remain strong but that
risks are rising
Source: IMF World Economic Outlook 2018

India needs 8% growth for 30 years to join
middle-income group: World Bank
India’s economy needs to grow 8% and
higher a year for the next three decades to
join the ranks of middle-income countries,
which would require major reforms in the
land, labour and financial sectors,
according to the World Bank.
Asia’s third-largest economy, which grew at
a rapid pace of 8.8% a year from 2004 to
2008, is expected to grow 6.7% this
financial year.
The World Bank projected the USD 2.5tn
economy could grow at 7.3% and 7.5% in
the next two years, helped by tax reforms
and benign global growth.

More than half of world's wealthy expect to
live to 100 :survey
On average, 53% of wealthy investors
around the world expect to reach age
100.
Despite their wealth, investors worry
about affording a 100-year life.
Healthcare costs top their list of concerns,
with 52% of investors worrying about
rising medical expenses
Nine in 10 investors are taking steps in
response to increasing life expectancy
such as adjusting spending habits and
financial plans, and allocating their wealth
to long-term investments.
In addition to real estate and equities,
cash surprisingly rounds out the top three
asset classes for long-term investing.
Source: UBS Investor Watch

China to develop Bangladesh industrial zone
China is developing a 750-acre industrial park in Bangladesh
which will largely be used by Chinese manufacturing firms, as
part of its push to expand links with South Asia and beyond.
State-run China Harbour Engineering Company will hold a
70 % share in a joint venture being formed for the park with
the Bangladesh Special Economic Zone Authority (BSEZA).
The industrial park will be in Bangladesh’s main port city of
Chittagong and will take five years to become fully
operational.
Chinese investment in Bangladesh would soon reach $10 bn,
mainly focused on power, road and infrastructure projects.
Most financing for Chinese investment in Bangladesh comes
through soft Chinese loans, with interest rates of 2 % and
repayment periods of 20 years.
Source: Reuters

Fed leaves interest rates unchanged
The Federal Reserve held interest rates steady on
02 May and expressed confidence that a recent
rise in inflation to near the U.S. central bank’s
target would be sustained, leaving it on track to
raise borrowing costs in June.
The Fed’s decision to leave its benchmark
overnight lending rate in a target range of
between 1.50 % and 1.75 % was unanimous.
The Fed raised rates in March and currently
forecasts another two increases this year, although
an increasing number of policymakers see three
increases as possible.
Investors overwhelmingly expect a rate hike at the
June 12-13 policy meeting.

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.

Economic Capsule - April 2018

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Economic Capsule - April 2018