SRI LANKA FINANCIAL SECTOR QUARTERLY UPDATE

Transcription

1 SRI LANKA FINANCIAL SECTOR QUARTERLY UPDATE FOURTH QUARTER 23 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 and Colombo Stock Exchange. If the data is adjusted by the respective organizations in subsequent reports, we will adjust our records accordingly. Performance of the Commercial Banking Sector : At the end of the 3 rd quarter of 23, out of the total assets in the commercial banking sector, the two state commercial banks (SCBs) accounted for 48% while the private domestic banks (PDBs) accounted for 4%. In terms of deposits, the SCBs led with 48%, followed by the PDBs with 41%. In terms of advances, the PDBs recorded 45% while the SCBs followed with 44%. The PDBs, during the period under review, recorded an increase of 3.1% in terms of assets, 3.1% in terms of deposits and 2.6% in terms of advances. The four major private banks dominated the PDB category accounting for 9% of the assets, 92% of the deposits and 9% of the loans granted. The Non Performing Loans (NPLs), as a percentage of total advances in the commercial banking sector, declined from 17.2% at the end of the 2 nd quarter to 16% in the 3 rd quarter.the CBSL has tightened provisioning requirements and also has introduced a discounting mechanism of the collateral value of the NPLs. With the enactment of the new Consumer Affairs Authority (CAA) Bill, the banking services also came under the purview of the CAA. Therefore, with the initiative of the Financial Sector Reforms Committee, an Ombudsman was appointed in order to ensure that irregular market practices are prevented. This measure will ensure that the banking sector is not subject to stringent controls by CAA which will be contrary to the on-going liberalization of the financial sector. Hatton National Bank, Seylan and Pan Asia Bank issued debentures to raise capital in the market to meet additional capital requirements. Pramuka Bank issue has not yet been resolved and after all options have been reviewed, the Regulator s decision is expected to be submitted to courts by end of January 24. The CBSL has announced that the Government sovereign ratings would be obtained from both local as well as international rating agencies. Performance of the Licensed Specialized (LSB) : At the end of the 3 rd quarter 23, out of the total assets of the LSBs, the National Savings Bank (NSB) led with 62% followed by National Development Bank (NDB) (15%), DFCC Bank (12%), Regional Development (4%) and the State Mortgage & Investment Bank (SMIB) (3%). In terms of their lending operations, NDB led with 27% followed by DFCC (25%), NSB (23%), RDB (9%) and SMIB (8%). NPLs, as a percentage of total advances of the LSBs, dipped down to 12% during the third quarter. Open Market Operations & Interest Rates : During the 4 th quarter of 23, average prime lending rate continued its decline further ending up at 9.3% in December as in September 23. The repo rate and reverse repo rates were further reduced to 7.% and 8.5% respectively in October. Active open market operations which commenced in March, 23 continues. The short term Treasury Bill rates have almost stabilized with one-year Treasury Bill rate increasing only marginally from 7.1% to 7.2% in December 23. The offer rates in the interbank money market too have stabilized at around 7.8%. This trend is mainly due to the continued high liquidity in the market, the reduction of the CBSL rates, active open market operations and low public

2 Financial Sector Quarterly Update:4th Quarter 23 borrowings despite a revenue shortfall. The government issued Treasury Bonds of longer term maturities of 6 and 1 years amounting to Rs. 7.2 billion during 4th quarter. For the first time, as planned 2-year bonds were issued during the last quarter of the year. Laws were passed in November which would enable the Scriplesss Securities Settlement System to go live in February 24 and the LankaSettle --- an automated payment and settlement system --- will be fully operational. Sri Lanka Central Bank would be the first in South Asia region to introduce this integrated automated payment and settlement system. The Central Bank is planning to initiate a cheque imaging system to bring down the clearing time from 5-15 days to 1-2 outside the Western Region. This scheme is expected to facilitate and expedite payments in the SME sector, government payments and to improve access to finance. Exchange Rate Movements: The rupee depreciated significantly against all major currencies during the 4 th quarter. The forex market has stabilized and deepened and the CBSL too has been an active player in the Forex market. The rupee depreciated against the Dollar by 2.5%, Sterling Pound by 9.3%, Euro by 1.9%, SDR by 6.6% and the Japanese yen by 6.5%. With the spurt of economic activities, the imports have increased exerting pressure on the Dollar. In addition, with the political upheavals during the quarter, export proceeds too would have marginally slowed down. In addition, this could partly be attributed to the usual seasonal demand for foreign exchange during the last quarter of the year, weakening of the dollar and delay in IMF second tranche of the PRGF. So far the tourist arrivals have not shown any adverse reactions to the recent political situation and foreign reserves amount to 5-months of imports which reflect the current comfortable reserve level of the country. Inflation: The inflation has further declined in the 4 th quarter of 23. Point-to Point Index increased marginally from 4.8% in September to 5.% in December and the Monthly Moving Average Index declined from 7.6% to 6.3 % during the same period reflecting the lagged effect of the inflationary trends during the past. The decline in inflation is mainly due to low prices in paddy and vegetables compared to last year. Better fiscal management has been further supported by increased output in domestic food supplies. However, inflation is likely to increase in 24 with the price increases in electricity, gas and fuel and wage increases. Capital Market Movements :. The investor sentiments have been strengthened since the cease fire since 22. Despite the sudden political instability, the continuation of the conflict-free environment signals a long term commitment to peace by all parties. The threat of a PA-JVP alliance and another election has damaged the growing investor confidence. The ASPI has marginally declined from 1,49 in September to 1,292 in December 23 and both Milanka and MBSL indices reflected a significant decline of 21% and 12% reaching 1,898 and 2,279 respectively. Milanka index is much more buoyant than the MBSL; an indication of the volatility of the upper end of the market. Decline has been reflected in all indices but more notable in the banking, beverages and investment trust sectors. Monthly turnover ranged from Rs.3.7 billion (US $ 38. million) to Rs.13.6 billion (US $ 14.5 million) during the quarter. However, foreign investor transactions recorded a net inflow of Rs. 1.8 billion (US $ 19 million) during the 4 th quarter; probably foreign investors taking advantage of the sudden slump in the market. Market capitalization declined as expected from Rs. 38 billion to Rs. 263 billion. If political instability continues and the peace negotiations are stalled for a longer period of time, the investor confidence is likely to diminish. The CSE signed a MOU with Karachchi, Lahore and Islamabad stock exchanges for greater cooperation. A similar MOU has already been signed with Mumbai. Report, Graphic Design & Concept : Sriyani Hulugalle Graphs Update:Malathi Ratnayake 16./1/24 2

3 Financial Sector Quarterly Update: 4th Quarter 23 Table 1: Market Structure of the Commercial Banking System As at the end of 3rd Quarter 23 Licensed Commercial Figure 1-Commercial Bank Assets State Commercial 48% Foreign 12% Private Domestic 4% Figure 2 - Commercial Bank Deposits State Commercial 48% Foreign 12% Private Domestic 41% Figure 3: Commercial Bank Loans & Advances State Commercial 44% Foreign 11% Private Domestic 45% Note : Only in the case of Table 1, data relate to Quarter 3, 23. Data reflect Domestic and Foreign Currency Banking Unit transactions. Source : CBSL Bank Supervision Department and individual commercial banks. Licensed Specialized Figure 1 B-LSB Assets Figure 3B: LSB Loans & Advances DFCC 12% Others 3% RDBs 4% Others 8% RDBs 9% NSB 23% NDB 15% SM IB 3% NSB 62% DFCC 25% NDB 27% SM IB 8% 3

4 Financial Sector Quarterly Update: 4th Quarter 23 Table 2: Open Market Operations (Quarter 4, 23) Treasury Bills Treasury Bonds 91 Days 182 Days 364 Days 2 Years 3 Years 4 Years 5 Years 6 Years 1 Years 15 Years Mont h Volume Av. Yield %Volume Av. Yield Volume Av. Yield Volume Av. Yield Volume Av. Yield Volume Av. Yield Volume Av. Yield Volume Av. Yield Volume Av. Yield Volume Av. Yield Source: Economic Research Department, Central Bank of Sri Lanka Rs. Mn % Rs. Mn % Rs. Mn % Rs. Mn % Rs. Mn % Rs. Mn % Rs. Mn % Rs. Mn % Rs. Mn % Rs. Mn % 23 Jan 2, , , , 9. 1,5 9.1 Feb 3, , , ,5 1.1 March 2, , , , 1.1 April 3, , , , , 9.5 May 2, , , , , ,5 9.3 June 2, , , 9.5 2,5 9.1 July 1, , , , 8.51 August 1, , , 8.3 2, , 7.63 September 2, , , , , ,5 7.4 October 1, , , November 2, , , December 3, , Source: Central Bank Figure 4: Yield Curve of Govt. securities Figure 5: Yield Trend of Government Securities % Maturity of the Security January February M arch April May June July August September October November December 91 Days 182 Days 364 Days 2 Years 3 Years 4

5 Financial Sector Quarterly Update: 4th Quarter Jan Feb March April May June July August September October November December Le n ding Rates (%) Co m mercial Bank Average Prime Lending Rates Lo w est Prime Lending Rates Sr Lanka Inter Bank Offer Rate (SLIBOR) (%) 1 Day Day M onth Ca ll Money Market Rate (Av) (%) Ce n tral Bank Repurchase Rate (%) CB Reverse Repurchase Rate (%) Ba k Rate (%) n Savings Rates (%) Co m mercial Bank Savings Deposits N/A N/A Co mmer cial Bank 1 Yr. Fixed Deposits N/A N/A Na ional Savings Bank Savings Deposits National Savings Bank 1 yr. Fixed Deposits Av rage Weighted Deposit Rate (AWDR) e Source: Economic Research Department, Central Bank of Sri Lanka 5 i t

6 Figure 6: Lending/ Deposit Rates Financial Sector Quarterly Update: 4th Quarter 23 Figur e 8: Real Interest Rates 6 23 Jan Feb March April May June July August September October November December Commercial Bank Average Prime Lending Rates M o n th Lowest Prime Lending Rates Bank Rate (%) Average Weighted Deposit Rate (AWDR) Figure 7 - Srilanka Inter-Bank Offer Rates and Call Money Market Rate 12 % Jan Feb Mar ch Apr i l May June Jul y August September October November December 1 D ay 7 Day 1 M o nt h Call Money Market Rate (Av) Commercial Bank Average Prime Lending Rates Real Prime Lending Rate Average Weighted Deposit Rate (AWDR) Real Weighted Deposit Rate %

7 Financial Sector Quarterly Update: 4th Quarter 23 Table 4: Exchange Rate Movements Exchange Rates End of US$ GBS JPY* Euro SDR 23 Jan Feb Mar Apr May June July August S ept ember October November December 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 Bank of Sri Lanka Figure 9: Exchange Rates Rupees US$ GBS JPY* Euro SDR 7

8 Financial Sector Quarterly Update: 4th Quarter 23 Table 5 : Consumer Prices Indices Jan Feb Mar April May June July August Septemb October NovemberDecember Colombo Consumers' Price ( 1952=1) All items Growth Rate % Month-to-month Point-to-point month M/A Greater Colombo Consumers' Price Index (1989 = 1) All items N/A Growth Rate % Point-to-point N/A 12-month M/A N/A Source: Census and Statistics Department Figure 1: Consumer Price Index Month Month-to-month Point-to-point 12-month M

9 Financial Sector Quarterly Update: 4th Quarter 23 Table 6: Capital Market Movements Sectors 23 Jan Feb March A pril May June July August SeptemberOctober November Decembe 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 9

10 All Share Price I Financial Sector Quarterly Update: 4th Quarter 23 Figure 11 Equity Market: Indices Figure 12: Equity Market - Sector Indices ndex Milanka Price Index *1 MBSL Mid Cap *2, Finance & Insurance Beverage, Food & Toba cco Investment Trusts M anufacturing Figure 13: Market Performance Month M ont hly M arket Turnover (Rs. M ns) Foreign Purchases (Rs. M ns) Foreign Sales (Rs. M ns) Net Purchases (Rs. M ns) M arket Capitalization (Rs. Billions) 1 Indices