SRI LANKA FINANCIAL SECTOR QUARTERLY UPDATE FIRST QUARTER Highlights

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1 Financial Sector Quarterly Update-1st t Quarter 26 SRI LANKA FINANCIAL SECTOR QUARTERLY UPDATE FIRST QUARTER 26 Highlights Performance of the ing Sector 1 : At the end of the 4 th quarter of 25, out of the total assets in the commercial banking sector, the two state commercial banks (SCBs) accounted for 42% and the private domestic banks (PDBs) too contributed the same share. In terms of deposits, the SCBs led with 45% followed by the PDBs with 42%. In terms of advances, the PDBs recorded 48% while the SCBs followed with 38%, indicating that the PDBs continued to be more aggressive in the supply side. The PDBs, during the period under review, recorded an increase of 2.3% in terms of assets, 1.% in terms of deposits and.7% in terms of advances. The four major private banks (HNB,, Seylan and Sampath) continued to dominate the PDB category accounting for 85% of the assets, 89% of the deposits and 85% of the loans granted. The Non Performing Loans (NPLs), as a percentage of total advances in the commercial banking sector, further declined from 8.4% in the 3rd quarter to 7.9% in the 4th quarter. The decline was reflected in all categories and the level of NPLs in the state commercial banks declined from 1.2%in September to 9.2% in December. The banks continue to make high provisions for the NPLs and the Tsunami has not impacted too adversely on the banks performance. Performance of the Licensed Specialized (LSB) : At the end of the 4th quarter 25, out of the total assets of the LSBs, the National Savings (NSB) led with 69% followed by DFCC (15%), Regional Development (7%) and the State Mortgage & Investment (SMIB) (3%). In terms of their lending operations, DFCC led with 32% followed by NSB (3%), RDB (16%) and SMIB (9%). NPLs, as a percentage of total advances of the LSBs, declined from 1.% in the 3rd quarter to 9.3% in the 4th quarter. The SMIB (a state housing bank) continues at a relatively high level of NPLs recording 35%. The lower rate can be attributable to DFCC and NSB. Interest Rates : During the 1st quarter of 26, the average prime lending rate has declined from 12.2% in December to 12.% in March 26. The repo rate and reverse repo rate around 8.75% and 1.25% 2 respectively. The short term Treasury Bill rates have remained at the same level as the previous quarter (1.4%). The offer rates, in the interbank money market, have followed the market trends and have declined marginally to 1.47% %. The Central has been relatively aggressive in open market operations which helped in containing monetary expansion. Broad money supply has been increasing due to the rapid credit expansion for the private sector and though it has decelerated, the rate of increase is about 2%. 1 The changes noted in the percentages of both commercial banks and specialized banks is mainly due to the NDB bank being transferred to the commercial category. 2 Active open market operations which commenced in March, 23 continued. 1

2 Financial Sector Quarterly Update-1st t Quarter 26 Exchange Rate Movements: 3 The Rupee movements against all major currencies recorded depreciation. The rupee depreciated against the Dollar by.6%, Euro by 3.2%, SDR by 1.5%, Sterling Pound by 1.9% and Japanese Yen by 1.1%. The trade deficit widened marginally but it has been offset by private remittances, official inflows for the Government but the surplus Balance of Payment has declined to US$ 142 million. The gross official reserves amounted to $ 2.8 billion to cover 3.6 months of imports while the total reserves increased to $ 4.3 billion covering 5.8 months of imports. Inflation: The declining trend in inflation reflected in the first quarter has continued during the 1st quarter. In the 1 st quarter of 26, Point-to Point Index declined from 8.% in December 25 to 6.% in March and the Monthly Moving Average Index declined from 11.6% - 9.6%. The impact of the fuel prices were off set by favorable prices in agricultural products. Paddy cultivation recorded a better output while the fisheries sector too has recovered substantially. Inflation has been moderate due to the improved supply conditions and active monetary policy measures adopted. However, the fuel, gas and electricity price adjustments are likely to reverse the trends later in the year. Capital Market Movements 4 : With the election of a new president backed by a more socialist coalition, the stock market has been rather volatile. After the election, even though the ceasefire officially continues, the sporadic attacks on the government forces and the civilians have escalated substantially with few retaliatory actions taken by the forces. The new president has also announced his commitment to a negotiated settlement; however the reaction from the LTTE has not been encouraging. A new budget was presented in December but was not too different from the previous budget in November. The capital market performance has been mixed and volatile. The ASPI has increased from 1922 in September to 2264 in March and Milanka and MBSL indices recorded a significant increase by 17.6% and 2.% respectively. The investors are still not confident of the conflict situation and the volatility in the market has been quite significant during the past few months. Monthly turnover ranged from Rs. 7.8 billion (US $ 76. million) to Rs billion (US $ 112. million) during the quarter. Foreign investor transactions recorded a net inflow of Rs. 756 million (US $. 7.4 million) during the 1st quarter of 26 while the market capitalization increased from Rs.584. billion to Rs 688 billion. Report, Graphic design and concept: Sriyani Hulugalle Graph Update: Malathi Ratnayaka June 2, 26 3 The Central floated the Rupee in January The investor sentiments have been strengthened since the cease fire since 22 2

3 Licensed Tabe 1: Market Structure of the ing System As at the end of 4th Quarter 25 Figure 1- Assets Foreign 15% State 42% Private Domestic 43% Figure 2 - Deposits Stat e 45% Foreign 13 % Privat e Domestic 42% Figure 3: Loans & Advances Foreign 14% St at e 38% Privat e Domest ic 48% Figure 1-A- Assets of Private Domestic Figure 2-A: Deposits of the Private Domestic Figure 3-A : Loans & Advances of Private Domestic Other 15% Seylan 19 % Sampat h 13 % HNB 25% 28% Other 11% H N B 28% Seylan 19% Sampath 14% 28% Seylan 19% Other 15% Sampath 14% HNB 24% 28% Note : Only in the case of Table 1, data relate to Quarter 4, 25. Data reflect Domestic and Foreign Currency ing Unit transactions. Source : CBSL Supervision Department and individual commercial banks. 3

4 Licensed Specialized Figure 1B-LSB Assets RDBs 7% Figure 3B: LSB Loans & Advances DFCC 15% Others 6% Others 13% RDBs 16% NSB 3% SMIB 3% NSB 69% DFCC 33% SMIB 8% 4

5 Table 2: Open Market Operations (Quarter 1, 26) Treasury Bills Treasury Bonds Volume 91 Days 182 Days 364 Days 2 Years 3 Years 4 Years 5 Years 6 Years Av. Yield Av. Av. Av. Av. % Volume Yield Volume Yield Volume Yield Volume Av. Yield Volume Av. Yield Volume Yield Volume Av. Yield Rs. Mn % Rs. Mn % Rs. Mn % Rs. Mn % Rs. Mn % Rs. Mn % Rs. Mn % Rs. Mn % 3, , , , , , , , , , , , , , , , , , , , , , , , , , , , Source: Economic Research Department, Central of Sri Lanka Figure 4: Yield Curve of Govt. securities Figure 5 : Yield Trends of the Government Securities % Maturity of the Secur ity. April May June July August September October November December 26 January February March 91 Days 182 Days 364 Days 2 Year s 3 Year s 4 Year s 5 Year s 5

6 Table 3 Interest Rates April May June July August September October November December January 26 February March Lending Rates (%) Average Prime Lending Rates Lowest Prime Lending Rates Sri Lanka Inter Offer Rate (SLIBOR) (%) 1 Day Day Month Call Money Market Rate (Av) (%) Central Repurchase Rate (%) CB Reverse Repurchase Rate (%) Rate (%) Savings Rates (%) N/A 12. N/A Savings Deposits 1 Yr. Fixed Deposits National Savings Savings Deposits National Savings 1 yr. Fixed Deposits Average Weighted Deposit Rate (AWDR)

7 M o n th Figure 6: Lending/ Deposit Rates Figure 7 - Srilanka Inter- Offer Rates and Call Money Market Rate % % 8 4 Average Prime Lending Rates Rate (%) Lo we s t P rim e Le ndin Average Weighted De 1Day 7 Day 1Month Call Money Market Rate (Av) Figure 8: Real Interest Rates Average Prime Lending Rates Real Prime Lending Rate Average Weighted Deposit Rate (AWDR) Real Weighted Deposit Rate 7

8 Table 4 Exchange Rates Exchange Rates End of US$ GBS JPY* Euro SDR 25 April May June July August September October November December January February March Note: Rupees per 1 JPY; From January 22, all 12 members of the Euro Currency Area replaced their national currencies with the Euro. Source: Economic Research Department, Central of Sri Lanka Figure 9: Exchange Rates 25 2 Rupees US$ GBS JPY* Euro SDR 8

9 Table 5 : Consumer Prices Indices Colombo Consumers' Price ( 1952=1) April May June July August September October November December January February March All items Growth Rate % Month-to-month Point-to-point month M/A Greater Colombo Consumers' Price Index (1989 = 1) All items Growth Rate % Point-to-point month M/A Source: Census and Statistics Department Figure 1: Inflation April May June July Point-to-point August September October November December January February 12-month M/A March 9

10 Table 6. Capital Market Information Market Assessment April May June July August September October November December 26- January February March All Share Price Index Milanka Price Index * MBSL Mid Cap * Sector Indices, Finance & Insurance Beverage, Food & Tobacco Chemicals & Pharmaceuticals Construction Diversified Holdings Footwear & Textiles Hotels & Travels Investment Trusts Land & Property Manufacturing Motors oil palm Plantations Services Stores & Supplies Trading Market Capitalization Monthly Market Turnover (Rs. Mns) Foreign Purchases (Rs. Mns) Foreign Sales (Rs. Mns) Net Purchases (Rs. Mns) Market Capitalization (Rs. Billions) * - MILANKA - Covers the largest 25 companies 2 *- MBSL - Covers the next largest 25 companies Source: Colombo Stock Exchange 1

11 Figure 11 Equity Market: Indices Figure 12: Equity Market - Sector Indices Indices All Share Price Index M ilanka Price Index *1 MBSL Mid Cap *2, Finance & Insurance Investment Trusts Beverage, Food & Tobacco Manufacturing Figure 13: M arket Performance. Monthly Market Turnover (Rs. Mns) Foreign Pur chases ( Rs. Mns) Foreign Sales (Rs. Mns) Net Purchases (Rs. Mns) Market Capitalization (Rs. Billions) 11