Economic Capsule - July 2020

Economic Capsule
December 2019
276th
Issue
Research & Development Unit
Economic Capsule
July 2020
282nd Issue

C O N T E N T S
ECONOMY & BUSINESS
 The Central Bank -Saubagya COVID-19 renaissance facility
 CBSL reduces policy rates
 Inflation – NCPI June 2020
 Business confidence picks up
 EDB steps up support for organic exports
 EDB exploring possibility to host wellness tourism summit next year
 Sri Lanka Tourism to support SMEs and product development with EU
funding
 World Bank downgrades SL to lower-middle income country
 Cabinet nod for first bio-tech innovation park in Homagama
 SL ranked second among 250 global start-up ecosystems for affordable talent
INTERNATIONAL
 S&P says governments must spend to support coronavirus-hit
economy
 World Bank calls on creditors to cut poorest nations' debt payments

ComBank makes history as only Sri Lankan Bank in
Top 1000World Banks for 10 successive years
Commercial Bank has brought honour to the country’s banking
industry by moving up 51 places on the World’s Top 1000
Banks ranking for 2020, and becoming the only Sri Lankan
bank to be on this prestigious list for 10 years in a row.
In its milestone 50th ‘Top 1000 World Banks’ ranking, ‘The
Banker’ magazine, published by the Financial Times of the UK,
has ranked Commercial Bank at No 878, primarily on the basis
of the Bank’s Tier I capital.
The Banker ranks banks from 1 to 1,000, primarily on tier-one capital, and regional breakdown is
supported with editorial commentary, making the Top 1000 World Banks one of the most industry-
recognised rankings available.

Double win for ComBank at 2020 Asiamoney
Banking Awards
Commercial Bank has won two prestigious international awards -‘Best Bank for Small
and Medium Enterprises’ and ‘Best Bank for Corporate Social Responsibility’ - from
Asiamoney Magazine, known as the voice of the banking and capital markets
industries in Asia.
‘Best Bank for SMEs’ recognizes Commercial Bank’s efforts in identifying the importance of small and
medium enterprises to the economy of the country and the products and services put in place to
empower this segment.
‘Best Bank for Corporate Social Responsibility’ award is a tribute to the Bank’s nationally-significant
contributions via its CSR Trust, to the spheres of education, healthcare, environment and community
development. The Trust had completed over 480 projects by the end of September 2019 with an
investment of Rs 500 million.

ComBank ‘Arunella’ brings multiple COVID-19
relief initiatives to customers
As its commitments to providing relief to businesses affected by
the COVID-19 pandemic continue to grow exponentially, the
Commercial Bank of Ceylon has announced the launch of ‘Arunella’
– a Financial Support Scheme that will bring together its multiple
initiatives in this sphere, enabling sharper focus and better
integration of schemes.
The Arunella Financial Support Scheme would encompass 11 different programmes already implemented by the
Bank for affected businesses and individuals as well as a 12th initiative just unveiled to provide relief beyond the
expiry of current debt moratorium periods.
The latest relief programme consists of Special Payment Relief Schemes that will extend special concessions for
several months beyond the existing debt moratorium to help customers that continue to be affected by the
economic fallout of the COVID-19 pandemic.
These concessions include flexible payment options, up to 20% rebates on accrued interest during the moratorium
periods, extension of moratorium periods for up to another six months, further reductions on Credit Card
repayments and applicable interest rates, and Debt Consolidation Plans. (read more)

Flash app introduces eco-awareness feature,
a first in Sri Lanka for an app
Commercial Bank’s groundbreaking digital banking app ‘Flash’
has been upgraded with revolutionary features, to enable users
to compute the environmental impact of their spending through
a ‘Save the Environment’ feature and better manage their
expenses via an Advanced Budgeting feature.
The novel ‘Save the Environment’ feature promotes an understanding of the social carbon footprint of
consumption by assessing each transaction a user of Flash app carries out via the app. The upgraded
Flash Advanced Budgeting feature is a personal financial management tool that enables real-time
budgeting with detailed categorization of expenses.
An extension of the budgeting feature, the carbon footprint calculator is the result of integrating the app
with the UN-approved Environment Impact Index for financial transactions. This enables the Flash Digital
Bank to analyse transactional data and estimate the environmental impact of each transaction made
through Card payments, QR code scanning, the app or any other form.

ComBank upgrades ePassbook with attractive
new features
Commercial Bank has announced several upgrades including
self-registration and real time transaction notifications to its
ground-breaking ComBank ePassbook mobile app,
significantly increasing the flexibility of account management,
user-autonomy and convenience.
The upgrades include a self-registration option that eliminates the need for existing
regular account holders to visit their respective branches to activate the app, and
provides users the ability to self-add, remove, or group Current Accounts, Savings
Accounts, and Credit Cards in their ComBank ePassbook mobile application.
Following the upgrade, account holders will also now receive real-time transaction
notifications via the app for every transaction. Further, it enables users to search for
particular transactions by feeding the app details related to date, description, or the
amount. Account holders will also be notified about their Credit Card dues through
the app.

ComBank introduces the first QR-enabled
payment option for Credit Cards in Sri Lanka
This is the first time any Sri Lankan Bank has enabled QR
code payments to settle Credit Card dues.
In order to make the payment, the Cardholder should
visit www.combank.lk and select the ‘Credit Card
Payments’ tab in the home page. The cardholder then
enters the card details and selects ‘Pay through QR’
option to do the card settlement.
Commercial Bank Credit Card holders can now
conveniently and instantly settle their Credit Card
outstanding via their mobile QR payment App by
scanning a QR code appearing on the Bank’s website.

The Central Bank -Saubagya COVID-19
renaissance facility
• The cumulative number of
loan applications so far
approved by the CBSL under
the Saubagya COVID-19
renaissance facility increased
to 26,291 as of 23rd July
2020.
• Similarly, the total value of
loans approved by the CBSL
increased to Rs. 72,079 mn as
of 23rd July 2020.
• The licensed banks had
already disbursed
Rs. 45,777mn among 18,007
borrowers island-wide as of
23rd July 2020
Institution
Total applications
registered by the CBSL
Total loans disbursed by
licensed banks
Number
Value
(Rs Mn)
Number
Value
(Rs Mn)
Commercial Bank of Ceylon 3,958 17,186 3,557 14,760
Bank of Ceylon 4,065 10,331 3,090 7,179
Hatton National Bank 2,463 9,819 909 3,801
People’s Bank 5,367 8,252 3,980 5,070
Sampath Bank 1,771 6,037 1,437 4,819
Seylan Bank 1,363 5,852 534 2,108
NDB 955 5,328 529 1,963
Pradeshiya Sanwardana Bank 4,209 2,283 2,500 1,132
DFCC Bank 654 1,585 529 1,148
NTB 184 1,413 154 1,127
Other 1,302 3,993 788 2,670
Total 26,291 72,079 18,007 45,777
"Saubagya COVID-19 Renaissance Facility"
Loan Scheme Progress as at 23.07.2020 – TOP 10
Source: CBSL

CBSL reduces policy rates
Central Bank eased monetary policy for the fourth time since March 2020, cutting its
Standing Deposit Facility Rate (SDFR) and Standing Lending Facility Rate (SLFR) by 100 basis
points (bps) each to 4.50% and 5.50%, respectively.
W.E.F. SDFR SLFR SRR
30 Jan 20 6.50 % 7.50 % 5.00 %
17 Mar 20 6.25 % 7.25 % 4.00 %
03 Apr 20 6.00 % 7.00 % Unchanged
06 May 20 5.50 % 6.50 % Unchanged
16 Jun 20 Unchanged Unchanged 2.00 %
09 Jul 20 4.50 % 5.50 % Unchanged
SDFR (Standard Deposit Facility Rate: Provides the floor rate for the
absorption of overnight excess liquidity from the banking system by the
Central Bank.
SLFR (Standard Lending Facility Rate) : Interest rate applicable on reverse
repurchase transactions of the Central Bank with Commercial banks on an
overnight basis under the Standing Facility, providing the ceiling rate for
the injection of overnight liquidity to the banking system by the central
bank.
SRR: The statutory reserve ratio (SRR) is the proportion of the deposit
liabilities that commercial banks are required to keep as a cash deposit
with the Central Bank.Source: CBSL

Inflation – NCPI June 2020
Headline inflation as measured by the
Year-on-Year change based on the NCPI has
increased to 6.3% in June from 5.2% in May 2020
• Contributions to the inflation rate of June 2020 from
food group and non-food group are 5.8% and 0.5%
respectively. Whilst contributions of food and
non-food groups to the inflation in June 2019
were -1.3% and 3.4% respectively, resulting in a
headline inflation of 2.1%
• Core inflation, which reflects the underlying
inflation by excluding volatile items of food, energy
and transport groups in the economy as measured
by the Year-on-Year change based on NCPI for the
month of June 2020 has increased to 4.4% from
3.7% in May 2020.
Source: CBSL

Sri Lanka’s Manufacturing PMI increase
significantly in June
• The Manufacturing PMI increased significantly in
June 2020 recording 67.3 with a month-on-month
increase of 18.0 index points compared to May 2020.
• This increase in manufacturing PMI is underpinned by
the significant improvement in Production, New
Orders and Employment especially in the
manufacturing of food & beverages and textiles&
wearing apparels subcategories, where many
respondents highlighted that their factories were
operated throughout the month of June receiving
more new orders than in the previous month mainly
supported by the local demand. In line with the
growth of New Orders, Production and Stock of
Purchases also increased at a higher rate during the
month.

Sri Lanka’s Manufacturing PMI increase significantly
in June (cont.)
• Services PMI returned to growth territory in June
2020 reaching 50.4, after recording index values less
than 50.0 threshold level for three consecutive
months.
• The World Manufacturing PMI: The global
manufacturing PMI recorded a value of 47.8 in June
2020 with an increase of 5.4 index points from
May2020.
• Manufacturing PMI of China and UK expanded while
Eurozone, USA, Russia and India remained contracted
in June 2020 with the adverse impact of COVID-19.
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

Business confidence picks up
The LMD- Nielsen Business Confidence Index (BCI)
improved for the first time this year, climbing seven
notches to register 96 in June 20.
LMD points out that this places the index higher than
a year ago (81) following the Easter Sunday attacks
although it remains 21 basis points below its average
for the last 12 months.
Optimism is on the rise once again and sentiment is positive as the country has opened up ahead of
others in the region. The civilian population, businesses, and private and public enterprises are adjusting
to a post- COVID life with many stringent measures put in place to curb a second wave of the
pandemic, according to Nielsen’s.
COVID-19 continues to be among the main concerns for business followed by the value of the rupee and
inflation. Meanwhile, COVID-19 is also cited as the most pressing national issue.

Sri Lanka Post-Lockdown Assumptions
The Road Back: Post-Lockdown Assumptions for Sri Lankan Corporates: Fitch Ratings, July 2020
Fitch estimate total lost revenue of LKR30 billion across its rated corporates in FY21, compared with
FY20 levels. Hotels lead revenue losses, followed by consumer durables retail.
• Hotels are among the hardest-hit sector by the pandemic and will see the largest drop in revenue in FY21.
Hotels have been operating with minimal revenue for almost four months and Sri Lanka is yet to decide when to
open its borders.
• Fitch expect the hotel sector to generate minimal revenue in 1HFY20, gradually increasing to around 30% of pre-
pandemic levels towards the end of FY20, benefiting from the peak tourist season. Fitch does not expect revenue
to normalise to pre-pandemic levels until at least the tail end of FY22.
• Consumer durables demand has recovered since movement restrictions were relaxed in May, but this could be
partly due to temporary pent-up demand. A further tightening of restrictions on consumer-durables imports
could also diminish recovery prospects for the sector.
• Fitch expects revenue of consumer-durables retailers to weaken in FY21, with muted demand throughout FY21
amid the difficult economic conditions.
• Fast moving consumer goods (FMCG) and food and beverage have seen some recovery in revenue since the re-
opening of retail outlets. Fitch expect the pace of recovery to be faster for these sectors than for most others, but
FY21 revenue will remain modestly below FY20 levels amid lower personal income.

Sri Lanka Post-Lockdown Assumptions (cont.)
• Private-sector hospitals will see 10%-15% top-line erosion due to lower footfall and falling personal incomes,
especially in the first half. Hospital sector revenue should rebound and surpass pre-pandemic levels from FY22,
once the economic conditions improve.
• The revenue of pharmaceutical trading and manufacturing companies is likely to remain flat in FY21,
supported by defensive demand and little disruption to operations during the lockdown.
• Alcoholic beverage sector should recover faster than most other sectors, with sales reaching pre-pandemic
levels by 3QFY21. This is supported by almost inelastic demand, mostly off-premise consumption as well as a
recovery in personal income levels and a gradual recovery in tourism. Overall, Fitch expects a yoy revenue
decline of around 15% in FY21.
• Telecoms - demand for 4G data and fixed-broadband will remain strong, as the need for online connectivity
and remote access will be boosted by the pandemic. Fitch forecast FY20 revenue to rise by a high-single-digit
percentage following a cut in telecommunication levies and taxes in early 2020.
• Tea volumes to remain robust in FY21 helped by better yields and increased global demand. Sri Lankan tea
prices surged by almost 20% since March, owing to rising demand for tea as an immunity booster as well as
supply disruption in major tea exporting countries.

EDB steps up support for organic exports
• EDB, the apex body for exports in the country, has extended financial
assistance for growers and processors to obtain organic certification as
per the Sri Lanka standard for organic agriculture products and
processing.
• Sri Lankan growers and processors willing to following organic agriculture
and processing practices in rice, fruits, vegetables, cashew, herbs, pulses,
spices, coconut kernel based products and green leaves are eligible to
apply for assistance.
• The objective of the program include; promotion of the National Organic Standard (SLS 1324:2018)
among the small farmers, streamline production, handling, processing and labeling of organically
grown agriculture products to meet a consistent standard, encourage conventional farmers
transform into organic cultivation and increase the production volumes and income, establish
transparency throughout the supply/value chains from farm to market, upgrade the farmers to
obtain international certification in future to meet the export demand and to obtain the mutual
recognition with organic standards in export destination.

EDB exploring possibility to host wellness
tourism summit next year
• Sri Lanka’s wellness sector is slated to come under spotlight next year
with, the Export Development Board (EDB) exploring the possibility of
hosting a wellness tourism summit in 2021.
• To be facilitated with the assistance of Sri Lanka Tourism, the summit is
planned to have representations from national and international
wellness service providers.
• The objective of the event is to promote the island nation as a high-
quality destination for wellness services on a global scale, the Sri Lanka
Tourism Development Authority (SLTDA) said.
• The local wellness tourism sector has received fresh focus with the EDB
recognising wellness tourism as a ‘thrust sector’ in the National Export
Strategy (NES) 2018-2022.

Sri LankaTourism to support SMEs and
product development with EU funding
Sri Lanka Tourism said it was in discussions with the
European Union Office in Colombo regarding the
most effective use of a Euro 3.5mn (over Rs 700mn)
Government- to- Government grant offered to help
recover from the COVID-19 pandemic.
Support includes
• One-time cash handouts to small and
medium hotels
• Upskilling employees in soft skills,
sanitary standards, business
management
• Programs with SME/homestays to
develop nature and community-based
products through a small grant
program
• Wellness sector – product development,
branding, marketing and certification of
wellness resorts focusing on Ayurveda
and Hela Wedakama
The total grant to the Sri Lankan Government is Euro
22mn, allocated primarily to support agriculture and
farmers, with Euro 3.5mn allocated to support the
tourism sector.
The EU is considering increasing the grant to EUR 4mn
and is awaiting final clearance from head office. A key
focus is supporting the “SME segment to increase overall
yield and grow tourism revenue that would benefit wider
segments of society,” according to Sri Lanka Tourism
Chairperson Kimarli Fernando.
Source: Daily FT

World Bank downgrades SL to lower-middle
income country
The World Bank has downgraded Sri Lanka from an
upper- middle income country to a lower- middle income
country from 1 July 2020.
The move comes under the World Bank’s 2020 - 2021
country classification by income level, exactly a year after
Sri Lanka was classified as an upper- middle income
category.
Group Categorization
(USD)
Low income < 1,036
Lower middle income 1,036-4,045
Upper middle income 4,046-12,535
High income >12,535
Source: WB
The world’s economies are assigned into four income groups— low, lower- middle, upper- middle, and
high-income countries by the World Bank.
The classifications are updated each year on 1 July and are based on GNI per capita in current US Dollar
(using the Atlas method exchange rates) of the previous year.
The World Bank said Sri Lanka was downgraded as a lower middle income country after it recorded
USD 4,020 GNI per capita income as of 1 July 2020, in comparison to the USD 4,060 last year, which
resulted in the country being classified in the upper- middle income category in 2019.

Cabinet nod for first bio-tech innovation
park in Homagama
Cabinet gave permission for the establishment of a bio-technology innovation park and
bio-technology institute on 13.2 acres in Homagama.
Plans have been drawn up to set up a Sri Lanka bio-technology innovation park and Sri Lanka
bio-technology institute in phases with the objective of promoting hi-tech exports and
encouraging import substitute products, the Government Information Department said.
The intention of this project is to facilitate a favourable environment required to act collectively
for developing the ideas of bio-tech companies and technological researches up to commercial
products.
The International Gene Technological Engineering and Biotechnology Centre, a UN affiliated
body, has selected Sri Lanka as their regional research centre in the South Asian region for
coordinating with the proposed Sri Lanka bio-technology institute.

SL ranked second among 250 global start-up
ecosystems for affordable talent
Sri Lanka is ranked second among 250 global
start-up ecosystems for affordable talent,
securing the top spot in the Asia Pacific region,
according to the 2020 Global Startup
Ecosystem Report (GSER) by Startup Genome
and the Global Entrepreneurship Network.
According to the report, the average salary of a
software engineer in Sri Lanka amounts to
USD 3,000 while the global average stands at
USD 42,100, making Sri Lanka an attractive
destination in terms of affordable talent.
The GSER has also ranked Sri Lanka among the
top 20 global start-up ecosystems for ‘Bang for
Buck’ (value for money).
In addition, the report also identified the Sri
Lankan government’s support for technology
companies as another reasons for start-ups to
flourish in the country.

Fed leaves policy rate unchanged,
The Federal Open Market Committee (FOMC) on 29 July announced that it left the
benchmark interest rate, the target range for federal funds, unchanged at 0%-0.25% as
widely expected.
The Fed’s policy statement, released at the close of its two-day meeting, directly tied the
economic recovery to resolution of a health crisis whose direction remains much in doubt
Fed policymakers repeated a pledge to use their “full range of tools” to support the
economy and keep interest rates near zero for as long as it takes to recover from the
epidemic.
U.S. stocks added to gains after the Fed’s statement, while longer-term U.S. Treasury yields
moved slightly higher. The dollar fell to a two-year low against a basket of currencies.

S&P says governments must spend to
support coronavirus-hit economy
With the pandemic exacerbating a slowdown in the global economy, governments around
the world may have no choice but to increase spending to support businesses and
households well into the next year, according to an economist from S&P Global Ratings.
S&P Global Ratings earlier this month downgraded its forecast for the global economy. It
now expects global gross domestic product to shrink by 3.8% this year — worse than the
2.4% contraction it previously projected.
The global economy is forecast to bounce back to an average 4% growth in 2021 to 2023,
but the level of economic output in nearly all economies is expected to remain below
2019 levels — before the virus spread globally — for several years, the agency said

World Bank calls on creditors to cut poorest
nations' debt payments
Private sector lenders to some of the world’s poorest countries should agree plans to
reduce debt payments or risk turning the Covid-19 pandemic into a deeper economic
crisis, the World Bank has said.
Speaking before the start of the G20 finance ministers meeting, the bank’s chief
economist, Carmen Reinhart, said banks and hedge funds that lend to the developing
world should cooperate with moves to cut debt payments, allowing poorer countries to
pay for vital medical and food supplies.

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 >

Economic Capsule - July 2020

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