1
SRI LANKA
SECTOR QUARTERLY UPDATE
FIRST QUARTER 2010
Highlights
Introduction : This note is prepared by the World Bank Colombo Office to review the trends of some of the key indicators which have an impact on the financial sector performance. The main indicators identified in the report are: (i) banking sector performance in terms assets, deposits, advances, (ii) interest rates, (iii) exchange rate movements, (iii) inflation and; (iv) capital market movements. The data is collected from the Central Bank, individual banks, Department of Census and Statistics website and Colombo Stock Exchange. If the data is adjusted by respective organizations in subsequent reports, we adjust our records accordingly.
Performance of the Commercial Banking Sector1:At the end of the last quarter of 2009, out of the total assets in the commercial banking sector, the private domestic banks (PDBs) contributed 45% followed by the two state commercial banks (SCBs) with 40.8%. In terms of deposits, SCBs led with 44.6% followed closely by PDBs with 43.6%. In terms of advances, the PDBs recorded 48% while the SCBs contributed 40%, indicating that the PDBs still continue to lead the supply side. The growth in credit which had slowed down drastically in the past two years is showing signs of growth. The PDBs, during the period under review recorded an increase of 3.7% in terms of assets, 4.8% in terms of deposits and a marginal increase of 0.4% in terms of advances. The four major private banks continued to dominate the PDB category accounting for 77% of the assets, 82% of the deposits and 83% of the loans granted.
The Non Performing Loans (NPLs), as a percentage of total advances in the commercial banking sector declined from 8.6% in September to 7.6% in December 2009, reflecting the recovery of the domestic and the global economy. The decline was recorded mostly in the domestic banks. The banks continue to make relatively high provisions for the NPLs (around 54%). The provisioning cover which has been declining due to the financial crisis seems to be improving. The EU is still in dialogue with the Government on the GSP Plus facility and has not yet withdrawn it yet. Some of the SMEs still continue to face difficulties in accessing credit due their past non-payment records.
There is a concerted effort to open bank branches especially in the North and East including the foreign banks such as State Bank of India and HSBC. The local banks have been expanding their presence in the North and East and reportedly the deposit mobilization has taken place while the borrowing is much less. State banks reduced the interest rates to 9% for Northern credit program.
IMF upgraded Sri Lanka to middle income emerging market status. Sri Lanka Insurance was permitted by the CBSL to invest over 10% in NDB; a private bank. Some economic analysts saw this as a negative trend while others considered that investments by large contractual savings funds, a positive sign for the development of the stock market.
The government comfortably won the presidential elections in January and the parliamentary elections in April thus bringing political stability with the dawn of peace after a 30 year armed conflict. The government has almost a 2\3 majority in parliament. The President retained the Ministry of Finance with him and Dr.
2 Sarath Amunugama has been appointed a Deputy Minister of Finance while Dr. P.B. Jayasundera continues as the Secretary to the Ministry in addition to being the Secretary of a newly created Ministry of Economic Development.
Performance of the Licensed Specialized Banks (LSB) : At the end of the 4th quarter ‘09, out of the total assets of the LSBs, the National Savings Bank (NSB) led with 68% followed by DFCC Bank (12%), Regional Development Banks (9%) and the State Mortgage & Investment Bank (SMIB) (3%). In terms of their lending operations, NSB led with 42%, followed by DFCC (20%), RDB (15) and SMIB (7%). NSB in recent years has been aggressive in the lending side but has contained the NPLs at 3.2%. NPLs as a percentage of total advances of the LSBs remained at 10.6% in December. It has been noted that the NPLs have increased in the development banks due to the global economic crisis.
The problems relating to the failed unauthorized companies continue but there had not been any further collapse of finance companies during the quarter under review. Most of the registered failed companies have been handed over to various state financial institutions for rehabilitation. Part payments are being made to the depositors.
Interest Rates: During the 1st quarter of 2010, the downward trend of the average prime lending rate continued. It has further declined from 10.9% in December ’09 to 10.6% by March ‘10. The state banks reduced the interest rates and it was followed by the private sector during the later part of the year. The CBSL policy rates were maintained during the period under review; the repo rate and reverse repo rate remained at 7.5% and 9.75% respectively2. The government borrowings from the public declined with access to official flows. The short term Treasury Bill rates have declined significantly and the one year rate ended up at 9.47% in March. The offer rates, in the interbank money market ranged from 9.0-9.5% and the banks have excess liquidity since the demand for credit is still at a low level.
Exchange Rate Movements:3The Rupee appreciated against all major currencies during the 1st quarter. The Central Bank has been active in the forex market with mopping up operations in order to stabilize the exchange rate. The dollar has stabilized at around Rs. 114 since June 2009. The Rupee appreciated during the 1st quarter against the Sterling Pound by 6.4%, Euro by 6.1%, SDR by 3.1%, Japanese Yen by 0.8%, Dollar by 0.4% and the total foreign reserves by January had increased up to $ 6.7 billion (7.5 months of imports) while the gross official reserves amounted to $ 5.1 billion (5.8 months of imports). Although the 3rd tranche of IMF has not yet been released, the Government through a dollar dominated bond mobilized $ 100 million during the period under review. The Central Bank relaxed exchange control regulations allowing more residents earning foreign currency to open foreign currency accounts, permitting forward contracts for foreign currency transactions, removing the 100% margin deposits against advance payments for imports, removing the suspension of pre-payment for the import bills and allowing different exiting investment accounts to be unified as Securities Investment Accounts (SIA).
Inflation4: The inflation ended up at a lower single digit level during the period under review. In the 1st quarter of 2010, Point-to-Point Index increased from a low 4.8% by end of 2009 to 6.3% in March ’10 while the Monthly Moving Average Index further declined from 3.4% in December to 3.2% in March ‘10.. The stability in fuel prices, energy prices and the food prices (rice, wheat and milk foods) has made a favorable impact on the inflation. The agricultural produce and fish from East and North has invariably improved the supply side. However, there are signs of increasing inflation.
Capital Market Movements: With the continued peaceful environment for another quarter, the equity market conditions have further improved recording historic high levels of turnover. The ASPI has further
2 Active open market operations which commenced in March, ‘03 continued. 3 The Central Bank floated the Rupee in January 2003.
3 recorded an increase of 10% from 3,386 by end of the year to 3727 in March ‘10. Milanka and MBSL Indices too have continued to mirror a similar trend by recording further increase of 9.7% and 2% respectively. The investors continue to be bullish and there is active trading in the market. The monthly turnover ranged from Rs. 27.7 billion ($ 242.7 million) to a spectacular Rs. 32.7 billion ($ 287 million) during the quarter. Foreign investor transactions recorded a net outflow of Rs. 13.0 billion (US $. 114 million) during the 1st quarter of 2010 reflecting the profit taking of foreign investors. Market capitalization increased from Rs. 1.1 Trillion ($9.5 Billion) to Rs. 1.2 Trillion (US$ 10.6 billion) continuing to be over the one trillion mark. Despite remarkable performance in the stock market, the analysts believe that the market liquidity is not adequate to attract foreign investors and require significantly large companies such as Telecom listed on the stock market.
Report, Graphic design and concept: Sriyani Hulugalle Data Update: Sashikala Jeyaraj
4
Table 1: Market Structure of the Commercial Banking System
As at the end of 4th Quarter 2009
Licensed Commercial Banks
Note : Only in the case of Table 1, data relate to Quarter 4, 2009. Data reflect Domestic and Foreign Currency Banking Unit transactions.
Source : CBSL Bank Supervision Department and individual commercial banks.
Licensed Specialized Banks
Private Domestic Banks 45% State Commercial Banks 41% Foreign Banks 14%
Figure 1 - Commercial Bank Assets
Private Domestic Banks 45% State Commercial Banks 42% Foreign Banks 13%
Figure 2- Commercial Bank Deposits
Private Domestic Banks 47% State Commercial Banks 40% Foreign Banks 13%
Figure 3- Commercial Bank Advances
NSB 68% SMIB 3% DFCC 12% Others 9% RDBs 8% Figure 1 B:LSB Assets NSB 42% SMIB 7% DFCC 20% Others 16% RDBs 15%
5
Table 2 – Interest Rates
March April '09 May June July August September October November December January February March
Lending Rates (%)
Commercial Bank Average Prime Lending Rates 18.89 18.16 17.92 15.54 14.41 13.93 12.88 12.43 11.37 10.91 11.24 10.77 10.62
Sri Lanka Inter Bank Offer Rate (SLIBOR) (%)
1 Day 11.31 9.8 10.27 10.27 9.8 9.9 9.56 9.24 9.16 9 9.04 9.01 9.07
7 Day 12.79 11.38 11.29 10.45 10.25 10.13 9.98 9.6 9.4 9.3 9.3 9.24 9.3
1 Month 14.29 12.27 12.29 11.1 10.92 10.8 10.39 8 9.58 9.46 9.5 9.45 9.5
Call Money Market Rate (Av) (%) 11.39 9.64 10.47 9.58 9.48 9.4 9.15 8.96 8.64 8.97 9.08 9.11 9.13
Central Bank Repurchase Rate (%) 10.25 10.25 9 8.5 9.5 8.5 8 8 7.5 7.5 7.5 7.5 7.5
CB Reverse Repurchase Rate (%) 11.75 11.75 11.5 11 11 11 10.5 10.5 9.75 9.75 9.75 9.75 9.75
Bank Rate (%) 15 15 15 15 15 15 15 15 15 15 15 15 15
Savings Rates (%)
Commercial Bank Savings Deposits 3-16.50 3-16.50 3-16.50 3-16.50
1.5-15.0 1.5-13.5 1.5-13.6 1.5-13 15-12.5 1.5-12.5 1.5-12.50 1.5-12.51 1.5-10.5 Commercial Bank 1 Yr. Fixed Deposits
8.50-20.50 8.50-19.50 8.50-8.50-19.50 8.50-19.50 8-19.5 8-19.6 8-19.7 8.0-19 19-Aug 9.75-19 7.25-19.0 7.25-19.1 7.25-19.00
National Savings Bank Savings Deposits 5 5 5 5 5 5 5 5 5 5 5 5 5
National Savings Bank 1 yr. Fixed Deposits 15 15 15 14 14 14 13 13 10 9.5 9.5 9.5 9.5
Average Weighted Deposit Rate (AWDR) 11.55 11.52 11.43 11.12 10.98 10.98 10.34 9.76 9.76 8.01 7.73 7.4 7.22
Source : Central Bank of Sri Lanka
0 10 20 % Figure 4: Lending/ Deposit Rates Commercial Bank Average Prime Lending Rates Average Weighted Deposit Rate (AWDR) Call Money Market Rate (Av) (%) Central Bank Repurchase Rate (%) -10 -5 0 5 10 15 20
Figure 5: Real Interest Rates
Commercial Bank Average Prime Lending Rates
6
Table 3 – Exchange Rates
Exchange Rates End of US$ GBS JPY* Euro SDR April '09 120.09 177.84 123.00 159.78 179.91 May 115.03 183.68 119.00 160.87 176.40 June 114.94 188.86 120.00 161.36 177.06 July 114.95 189.00 121.00 162.34 178.22 August 114.86 187.01 123.00 164.99 178.98 September 114.85 182.85 129.00 166.94 181.07 October 114.84 190.27 126.00 170.46 182.23 November 114.48 187.72 133.00 170.94 184.16 December 114.45 185.09 123.00 163.94 178.67 Jan-10 114.44 185.30 127.00 160.15 178.51 Feb 114.64 175.01 128.00 155.66 174.76 March 114.02 173.23 122.00 153.97 173.15
Note: Rupees per 100 JPY;
Source: Economic Research Department, Central Bank of Sri Lanka
0 50 100 150 200
Figure 6 - Exchange Rates
7
Table 4 : Consumer Price Indices
Jan
2009 Feb
Marc
h April May June July
Augus t Septembe r Octobe r Novembe r Decembe r Jan 10 Feb Marc h Colombo Consumer Price
Index*(N) (2002=100) All Items 203.1 202.9 202 201 205.1 207.8 208.7 208.1 208.6 209.4 211 213.5 216. 4 21 7 214.6
CCPI (N) Growth Rate %
Month-to-month 0.3 0.1 0.4 0.5 2 1.3 0.4 -0.3 0.2 0.4 0.8 1.2 1.4 0. 2 -1.1 Point-to-point 10.7 7.6 5.3 2.9 3.3 0.9 1.1 0.9 0.7 1.4 2.8 4.8 6.5 6.9 6.3 12-month M/A 21.6 20.3 18.6 16.7 14.7 12.5 10.4 8.5 6.6 5.2 4.1 3.4 3.1 3.1 3.2
Note : The price indices were revised in January 2008 and the new series is being used from this quarter.
Source: Census and Statistics Department
0 2 4 6 8 10 12 14 16 18 Figure 7: Inflation
Point-to-point 12-month M/A %
8
Table 5. Capital Market Information
Market Assessment April May June July August September October November December Jan 10 Feb March
All Share Price Index 1736 2216 2432 2526 2608 2939 2977 2913 3386 3636 3808 3725
Milanka Price Index *1 1963 2520 2722 2836 2976 3297 3334 3326 3849 4182 4355 4221
MBSL Mid Cap *2 3787 4666 4938 5058 5347 6033 6357 6321 7169 7235 7447 7311
Sector Indices
Banks, Finance & Insurance 3500 4490 4833 5098 5338 6170 6305 6008 6595 6890 7216 7257
Beverage, Food & Tobacco 3421 3856 4048 4132 4679 4810 4985 4830 5363 5898 6359 6454
Chemicals & Pharmaceuticals 2548 3090 3478 3377 3491 4484 4622 4545 5302 5938 6042 5887
Construction 944 1295 1409 1531 1788 2124 2330 2491 3206 4126 4410 3926
Diversified Holdings 457 662 763 765 776 910 908 904 1133 1204 1227 1254
Footwear & Textiles 562 634 640 617 641 668 630 591 629 738 720 698
Hotels & Travels 1271 1628 1923 2054 2301 2612 2530 2422 2843 3512 3512 3410
Investment Trusts 10384 12430 13933 16409 18090 23154 22458 24089 32250 34057 36310 26478
Land & Property 233 277 309 309 306 342 335 321 347 376 380 360
Manufacturing 1108 1275 1332 1424 1447 1620 1681 1692 2013 2154 2328 2354
Motors 3343 38890 3745 3638 3513 4190 4267 6325 7215 7797 9011 6838
oil palm 13947 15013 17525 20684 22723 27093 27963 26871 41597 42650 43036 40491
Plantations 463 519 590 62 640 661 597 595 636 718 837 729
Services 5768 7278 7487 8421 8463 11155 10135 8854 11034 12562 12587 14487
Stores & Supplies 8597 8984 8399 8362 8129 9813 9631 10669 12068 11357 15321 17933
Trading 1313 1689 1988 2175 2594 2969 3143 3069 3878 5929 8534 8231
Market Capitalization
Monthly Market Turnover (Rs. Mns) 2644 13531 16198 9411 8976 19041 19109 12389 23958 27776 28377 32724
Foreign Purchases (Rs. Mns) 393 3920 4695 2881 2409 4436 4683 2733 10020 8070 3422 5203
Foreign Sales (Rs. Mns) 876 5836 4793 2347 2585 3567 3345 5089 10540 11005 5528 13236
Net Purchases (Rs. Mns) -483 -1916 -98 534 -176 869 1338 -2356 -520 -2935 -2106 -8033
Market Capitalization (Rs. Billions) 599 712 775 807 834 941 959 939.3 1092 1171 1227 1211
1* - MILANKA - Covers the largest 25 companies 2 *- MBSL - Covers the next largest 25 companies
9 0 1000 2000 3000 4000 5000 6000 7000 8000 Indices
Figure 8 Equity Market: Indices
All Share Price Index Milanka Price Index *1 MBSL Mid Cap *2 0 10000 20000 30000 40000 50000 60000 70000 Indic e s
Figure 9: Equity Market - Sector Indices
Hotels & Travels Construction Investment Trusts Beverage, Food & Tobacco
Figure 10: Market Performance .
Monthly Market Turnover (Rs. Mns) Foreign Purchases (Rs. Mns) Foreign Sales (Rs. Mns) Net Purchases (Rs. Mns) Market Capitalization (Rs. Billions)
