Economic Capsule - August 12

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ECONOMIC CAPSULE

August 2012

FINANCIAL SECTOR NEWS CBC - Group Results for the 06 Months Ended 30.06.2012

Commercial Bank’s 6-month Pre-tax Profit Soars to Rs 7.7 bn

Anagi Women's Savings Account

Commercial Bank Awarded Gold at National HRM Awards 2012

Rupee Loans to Sri Lankans Employed Abroad


C O N T E N T S

ECONOMIC & BUSINESS NEWS External Sector Performance – Jan-Jun 2012

Provincial GDP (at current market prices) – 2010 and 2011

Sri Lanka Ranked 94 in Global Innovation Index 2012 (GII)

IFC helps SL Banks Strengthen Trade Finance Expertise

British Airways to Resume Flights to Sri Lanka

EU Grants Rs. 9 bn (EUR 60 mn) to SL Lanka

Macro Trends

FINANCIAL SECTOR NEWS


CBC - Group Results for the 06 Months Ended 30.06.2012


Commercial Bank’s 6-month Pre-tax Profit Soars to Rs 7.7 bn (Bank)

● Exceptional balance sheet indicators, with deposit growth averaging nearly Rs 7 billion per month and gross loan book growth of more than Rs 5 billion per month in the first six months of 2012 have combined with strong gains in non-interest income to generate stellar 1st half results for Commercial Bank of Ceylon PLC.

● Sri Lanka’s benchmark private sector bank has reported profit before tax of Rs 7.71 billion for the six months ended 30 June 2012, recording growth of 34.06% over the first half of the previous year, and profit after tax of Rs 5.3 billion, an increase of 31.91%, emphatically reiterating its status as one of the country’s best performing corporate entities.

● The Bank’s net income for the six months was up 40.3% to Rs 16.5 bn, with interest income growing by 32.55% due to the increase in its loan portfolio. Non-interest income (foreign exchange & other income) improved by 105.63% to Rs 6.1 bn, mainly due to a growth of Rs 2.9 bn or 329.35% in exchange income.

● The increase in foreign exchange income was largely due to the relatively higher volume of foreign currency operations of the Bank and the translation gains recognised consequent to the depreciation of the Sri Lanka Rupee against the US Dollar during the six months period under review.


Commercial Bank’s 6-month Pre-tax Profit Soars to Rs 7.7 bn (Cont…)

● Net Interest income of the Bank grew by 18.38% over the corresponding six months of last year to Rs 10.459 billion. The main contributory factor for this increase in net interest income was the increase in interest income on the loans and advances portfolio of the Bank by Rs. 5.866 billion, or 44.25% during the six month period under review.

● Commercial Bank’s Total income for the six months was up 41.49% to Rs 30.393 billion. Total assets increased by 10.99% or Rs 48.489 billion, from Rs 441.099 billion at 31st December 2011 to Rs 489.588 billion at the end of the review period.

● Net provisions for bad and doubtful debts increased to Rs 1.008 billion as against a net reversal of Rs 300.6 million for the first half of 2011, made possible by the reduction of the general provision rate from 0.9% to 0.7% between 1st January and 30th June 2011.

● The Bank’s total capital adequacy ratio stood at 12.22% as at 30th June 2012, as against the prescribed minimum of 10%. The gross non-performing advances ratio increased from 3.43% as at 31st December 2011 to 3.66%, while the net non-performing advances ratio moved from 2.08% to 2.14% during the same period.


Anagi Women's Savings Account

A unique new savings account with exclusive benefits for women has been launched by Commercial Bank of Ceylon PLC.

Branded ‘Anagi’ Women’s Savings Account, the new account offers an interest rate over the normal savings rate (+1%), one of the best rates in the savings account category for women, Gold Loans at a concessionary rate (1% interest rebate) for the purchase of jewellery and a Combank Shopping Debit Card.

Minimum deposit of Rs 1,000.

Account holders have a choice of a branded passbook or statement based savings. An existing Savings Account can be converted into an Anagi Account.

Seasonal discounts on the Debit Card and credit facilities according to income levels for the purchase of jewellery or to meet any personal commitments are also available.


Commercial Bank Awarded Gold at National HRM Awards 2012

Commercial Bank of Ceylon was one of 10 leading corporate entities to be awarded Gold at the 2012 National HRM Awards presented by the Association of Human Resource Professionals in partnership with Aon Hewitt, a global HR consultancy firm.

This is the third consecutive instance in which the Bank won a Gold award under the new criteria set for the awards since 2007.


Rupee Loans to Sri Lankans Employed Abroad

Applicants should be Sri Lankans employed abroad, maintaining Non Resident Foreign Currency (NRFC) accounts.

Applicants should be in a position to service such loans out of the funds lying to the credit of their NRFC accounts as long as they are in foreign employment. However once the borrower returns to the country after ending the overseas employment contract he/she can service the loan with rupee funds.

Applicants should be informed of the option of obtaining a foreign currency denominated loan at a lower interest instead of a Rupee denominated loan which would be at comparatively higher rate of interest.

If the applicant opts for the loan in Sri Lankan Rupees, a letter should be obtained from the applicant expressly consenting to obtain a rupee loan instead of foreign currency denominated loan despite the rate variance.

All disbursements of loans should be in Sri Lanka Rupees to the rupee account of the borrower. Cont.…

As per the direction of the Central Bank of Sri Lanka, banks are advised to adhere to the following guidelines when granting above facilities.


Evaluation Criteria

Applicants should have been continuously employed overseas for a minimum period of 2 years and also should have a contract for future employment for a minimum period of 1 year.

Documentary evidence should be submitted regarding applicant's income, such as I . A Letter from the employer confirming the employment and the salary. II. Last six months pay sheets III . Bank statements (e.g. NRFC Account) for other bank customers.

Other documents (if applicable).I. Work permits issued by the respective country (Current).II. Evidence regarding the availability of visa etc.

Adequate security should be obtained in the form of a mortgage of a property or in the form of a lien on deposits etc. to cover the credit risk.

Authorized Dealers are requested to report the details of loans granted to the exchange control department on a quarterly basis.

Rupee Loans to Sri Lankans Employed Abroad (Cont…)

ECONOMIC & BUSINESS NEWS


External Sector Performance – Jan-Jun 2012A Summary of External Sector Performance (Jan-Jun) a 2011

USD mn2012

USD mnGrowth

%Exports 5,075.9 4,965.0 -2.2Agricultural 1,214.4 1,143.3 -5.9 of which, tea 711.6 682.0 -4.2Industrial 3,840.9 3,698.7 -3.7 of which, Textiles and garments 2,014.6 1,982.3 -1.6Mineral 16.2 29.0 78.6Imports 9,280.1 9,666.5 4.2Consumer Goods 1,791.5 1,623.5 -9.4Intermediate Goods 5,643.6 5,754.8 2.0 of which, Petroleum 2,146.8 2,574.5 19.9 Textile and textile articles 1,157.4 1,101.6 -4.8Investment Goods 1,822.4 2,272.3 24.7Balance of Trade -4,204.2 -4,701.5 -11.8Workers’ Remittances 2,506.6 2,942.4 17.4FDI 394.1 451.7 14.6Portfolio Investments (Net) -66.7 186.5 379.6Commercial Banks’ Long-term FC Borrowings 927.5 Earnings from Tourism 370.1 459.9 24.3Inflows to the Government (b) 1,510.6 2,277.5 50.8

(a) Provisional (b) Inflows to the Government include capital and current transfers to the government, inflows from sale of Treasury Bills and Treasury Bonds and long term loans of the Government.

Source: CBSL


Provincial GDP (at current market prices) – 2010a and 2011b

All provinces recorded double digit nominal growth rates in their PGDP in 2011. The Northern province recorded the highest growth rate of 27.1 per cent, in nominal terms, in 2011. The PGDPs of North Western and Southern provinces grew by 21.9 per cent and 21.4 per cent, respectively. However, the growth rates of the Eastern, North Central, Central and S’gamuwa provinces decelerated in 2011 compared to 2010.

(a) Revised (b) Provisional (c) Calculated using mid-year population estimates prepared by the Registrar General’s Department, (d) Ration between per capita income of the province to that of all Island. Source: CBSL


Sri Lanka Ranked 94 in Global Innovation Index 2012 (GII)

Sri Lanka is ranked 94 out of 141 countries in the Global Innovation Index 2012. Sri Lanka is ranked 15 among Lower Middle Income countries and ranked 3 among Central and Southern Asian countries. Other lower middle income countries ranked above Sri Lanka are India (64), Mongolia (68), Armenia (69), Vietnam (76), Paraguay (84), Morocco (88) and El Salvador (93).

The top 10 countries in the GII 2012 edition are Switzerland, Singapore, Sweden, Finland, the UK, the Netherlands, Denmark, Hong Kong (China), Ireland and USA.

Innovation Efficiency Index assesses countries particularly good at surmounting relative weaknesses on their Input Sub-Indices, with robust output results. The top ten performers are: China, India, the Republic of Moldova, Malta, Switzerland, Paraguay, Serbia, Estonia, Netherlands, and Sri Lanka.

India Mongolia Vietnam Sri Lanka

Global Innovation Index 64 68 76 94Innovation Input sub index 96 53 83 115

Innovation output sub index 40 79 59 76

Innovation Efficiency Index 2 109 27 10

Comparison of world ranking (out of 141 countries) with the rankings of selected Lower Middle Income Countries

Definitions

Innovation Input Sub-Index: Five input pillars capture elements of the national economy that enable innovative activities: (1) Institutions, (2) Human capital and research, (3) Infrastructure, (4) Market sophistication, and (5) Business sophistication. The Innovation Input Sub-Index is the simple average of the first five pillar scores

Innovation Output Sub-Index: Innovation outputs are the results of innovative activities within the economy. There are two output pillars: (6) Knowledge and technology outputs and (7) Creative outputs. The Innovation Output Sub-Index is the simple average of the last two pillar scores.

The overall GII score is the simple average of the Input and Output Sub-Indices.

The Innovation Efficiency Index is the ratio of the Output Sub-Index over the Input Sub-Index. It shows how much innovation output a given country is getting for its inputs, and is a sense of efficiency of sorts.


IFC helps SL Banks Strengthen Trade Finance Expertise

International Finance Corporation - IFC, a member of the World Bank Group, hosted an advanced trade finance seminar in Colombo to train bankers from Sri Lanka and Maldives on using sophisticated trade finance products, to better serve small entrepreneurs engaged in international trade.

The training program, helps bankers to identify opportunities to connect local businesses with international customers and suppliers. The participants also learn how to identify and mitigate operational risks by adopting international best practices in trade finance.

The initiative is part of IFC’s USD 3 billion Global Trade Finance Program, which supports banks in emerging markets as they channel credit towards trade-related transactions of their clients. Sri Lanka is a priority country for IFC.

IFC’s committed portfolio of USD 180 million in Sri Lanka covers projects across a range of sectors, including infrastructure, tourism, renewable energy, finance, and health care.


Other Economic News…

The European Union announced it would provide Sri Lanka a grant amounting to approximately Rs. 9 bn (EUR 60 mn) under the European Union support to the District Development program spanning over 2012-2017.

The agencies are namely UNDP, UNICEF, UNOPS, FAO, ILO and IFC of the World Bank Group with European Union financial assistance. The European Union envisages supporting two major components identified in line with the National Development Program of Sri Lanka, notably poverty reduction and provision of basic infrastructure and services for vulnerable populations.

British Airways is to resume flights to Sri Lanka from Gatwick Airport in early 2013. After a 15-year absence, the carrier will start flights from Gatwick airport in London to Sri Lanka's Colombo international Airport in Katunayake via Male in the Maldives.

The service will run three times a week on Wednesday, Friday and Sunday beginning from March 31, 2013. British Airways last operated the Colombo-London service in 1998 and suspended the service due to the security situation at the time in Sri Lanka.

EU Grants Rs. 9 bn (EUR 60 mn) to SL LankaBritish Airways to Resume Flights to Sri Lanka


Macro Trends

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

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Economic Capsule - August 12