SRI LANKA SECTOR QUARTERLY UPDATE. Highlights

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized SRI LANKA SECTOR QUARTERLY UPDATE FORTH QUARTER 29 Highlights Financial Sector Quarterly Update:4th Quarter 29 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 Sector 1 : At the end of the 3 rd quarter of 29, out of the total assets in the commercial banking sector, the private domestic banks (PDBs) contributed 44% followed by the two state commercial banks (SCBs) with 41%. In terms of deposits, SCBs led with 44.4% followed closely by PDBs with 43.8%. In terms of advances, the PDBs recorded 47% while the SCBs contributed 41%, indicating that the PDBs still continue to lead the supply side. It has been noted that the growth in credit has slowed down drastically in the past two years. The PDBs, during the period under review recorded an increase of.8% in terms of assets and 3.6% in terms of deposits while the advances declined by.6%. The four major private banks continued to dominate the PDB category accounting for 77% of the assets, 83% of the deposits and 83% of the loans granted. There was a significant increase in the bank branches especially in the North and East improving access to finance (28 branches) throughout the country. The Non Performing Loans (NPLs), as a percentage of total advances in the commercial banking sector increased from 8.4% in June to 8.6% in September 29, reflecting the adverse impact of the global economic recession. The increase was recorded in all categories. The NPLs in the state commercial banks increased from 6.6% in the 2 nd quarter to 7.2% in the 3 rd quarter of 9 while the NPLs have remained at 11% in the private banks especially due to the troubled Seylan Bank (3%). The banks continue to make relatively high provisions for the NPLs (around 5%). However, the provisioning cover has been declining due to the current financial crisis but the CBSL is closely monitoring it and taking corrective actions when neccessary. Given the slow economic recovery of the global trading partners, there is a possibility of even higher NPLs in the last quarter and 21. There is still a likelihood of the European Commission withdrawing the GSP+ facility but the CBSL has estimated that exports to EU under this facility to be only 7%. 29 ended with a more positive note despite the daunting challenges such as the conflict situation, the global financial crisis, high inflation and interest rate regimes and the domestic financial crisis (i.e. threat of a failed bank) faced at the beginning of the year. However, the CBSL had a preparedness plan for both the banks and the finance companies and acted expeditiously averting a crisis in the financial sector. These uncertainties also had an impact on investor confidence. By the end of the year, the scenario had changed with bottoming out of the global financial crisis, low inflation and interest rate regime and the expeditious reconstruction process in the North and Eastern Provinces after the liberation from the LTTE. The banking sector had increased its presence in the two provinces. 1 3 rd Quarter data for bank performance. 1

2 Performance of the Licensed Specialized (LSB) : At the end of the 3 rd quarter 9, out of the total assets of the LSBs, the National Savings Bank (NSB) led with 68% followed by DFCC Bank (12%), Regional Development (8%) and the State Mortgage & Investment Bank (SMIB) (3%). In terms of their lending operations, NSB led with 4%, followed by DFCC (21%), RDB (15) and SMIB (7%). NSB in recent years has been aggressive in the lending side but has contained the NPLs at 3.1%. NPLs as a percentage of total advances of the LSBs, increased marginally from 1.6% in June to 1.7% in September. It has been noted that the NPLs have increased in the development banks due to the economic recession. 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. Interest Rates: During the 4 th quarter of 29, a downward trend of the average prime lending rate has been observed. It has further declined from 12.9% in September to 1.9% in December. 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 have declined during the period under review; the repo rate and reverse repo rate declined from 8.% to 7.5% and 1.5% to 9.75% respectively 2. 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 9.75% in December. The offer rates, in the interbank money market further declined to a range of %. With the CBSL mopping of foreign assets, the liquidity in the financial system has increased substantially. The year started with an average prime lending rate of 19.3% and a high inflation rate of 21%. However by end of the year, the scenario has changed dramatically. One reason was the slowing of economic activities (leasing, manufacturing and housing) due to the global financial crisis which slowed down the demand for credit. With the decline in oil prices the fuel import bill also had dipped almost by half. In addition, the government had access to concessionary lending from its development partners for major construction and welfare work in the North and East. Exchange Rate Movements: 3 The Rupee depreciated against major currencies during the 4 th quarter except for the Sterling Pound. 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 although in April 29 the dollar peaked at Rs. 12. The Rupee depreciated during the 4 th quarter against the Japanese Yen by 7.5%, Euro by 1.8%, SDR by 1.3% and Dollar by.3% while appreciating against the Sterling Pound by 1.2%. Total foreign reserves by October had increased up to $ 5.2 billion (6.3 months of imports) while the gross official reserves amounted to $ 4.8 billion (5.8 months of imports). The private remittances continued to flow into the country reaching $ 2.8 billion in October. The CBSL has been able to build up the foreign reserves to record levels of over $ 5.2 billion of which CBSL has absorbed about $ 2.8 billion. The investments by foreigners and Sri Lankan expatriates in government securities during May to November amounted to $ 1.7 billion. The reserves were boosted up by the inflow of the first and second tranche of the IMF loan (US 651 million) and also the funds received ($ 58 million) from a special allocation from IMF to all member countries. The tourism sector has shown positive trends and if the economic and political stability recorded in second half continues, is expected to become a major source of foreign exchange to the country. 29 is expected to end up with a balance of payment surplus of $ 2.7 billion, the highest ever recorded. 2 Active open market operations which commenced in March, 3 continued. 3 The Central Bank floated the Rupee in January 23. 2

3 Inflation 4 : The inflation ended up at a lower single digit level during the period under review. In the 4 th quarter of 29, Point-to-Point Index increased from a low.7% in September to 4.8% by end of the year while the Monthly Moving Average Index further declined from 6.6% in September to 3.4% in December. The year which commenced with double digit inflation (21% in January) ended up at a single digit level; lowest since 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, with the impending elections in early 21, the call for higher wages might lead to an increase in inflation whichever party comes to power. 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 recorded an increase of 15% from 2,939 in September to 3,386 by end of the year. Milanka and MBSL Indices too have continued to mirror a similar trend by recording another spectacular increase of 17% and 19% respectively. The investors continue to be bullish and there is active trading in the market. The monthly turnover ranged from Rs billion ($ 18.2 million) to a spectacular Rs. 24. billion ($ 29.3 million) during the quarter. Foreign investor transactions recorded a net outflow of Rs. 1.5 billion (US $. 13 million) during the 4 th quarter of 29 reflecting the profit taking of foreign investors. US Based funds of Raj Rajaratnam and the Galleon Fund had sold out of major blue chip companies where they had substantial shares due to the US insider dealing scandal. Market capitalization increased from Rs. 941 billion ($ 8.2 Billion) to Rs. 1.1 Trillion ($9.5 Billion) passing the historic one trillion mark. With the indices recording growth over 125 percent, Sri Lankan stock market became one of the best performing equity markets in the world. Report, Graphic design and concept: Sriyani Hulugalle Data Update: Sashi Jeyaraj January 1, 21 4 The price indices were revised in January 28 and the new series is being used from this quarter. 3

4 Licensed Commercial Table 1: Market Structure of the Commercial Banking System As at the end of 3rd Quarter 29 Figure 1 - Commercial Bank Assets Figure 2- Commercial Bank Deposits Figure 3- Commercial Bank Advances State Commercial 41% Foreign 15% Private Domestic 44% State Commercial 42% Foreign 13% Private Domestic 45% State Commercial 4% Foreign 13% Private Domestic 47% Note : Only in the case of Table 1, data relate to Quarter 3, 29. Data reflect Domestic and Foreign Currency Banking Unit transactions. Source : CBSL Bank Supervision Department and individual commercial banks. Licensed Specialized Others 9% DFCC 12% Figure 1 B:LSB Assets RDBs 8% Others 16% RDBs 15% Figure 3B: LSB Loans & Advances NSB 42% SMIB 3% NSB 68% DFCC 2% SMIB 7% 4

5 Table 2 Interest Rates Jan 29 February March April May June July August September October November December Lending Rates (%) Commercial Bank Average Prime Lending Rates Sri Lanka Inter Bank Offer Rate (SLIBOR) (%) 1 Day Day Month Call Money Market Rate (Av) (%) Central Bank Repurchase Rate (%) CB Reverse Repurchase Rate (%) Bank Rate (%) Savings Rates (%) Commercial Bank Savings Deposits Commercial Bank 1 Yr. Fixed Deposits Aug National Savings Bank Savings Deposits National Savings Bank 1 yr. Fixed Deposits Average Weighted Deposit Rate (AWDR) Source : Central Bank of Sri Lanka % 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 (%) Figure 5: Real Interest Rates Commercial Bank Average Prime Lending Rates Real Prime Lending Rate Average Weighted Deposit Rate (AWDR) Real Weighted Deposit Rate 5

6 Table 3 Exchange Rates Exchange Rates End of US$ GBS JPY* Euro SDR Jan Feb March April May June July August September October November December Note: Rupees per 1 JPY; Source: Economic Research Department, Central Bank of Sri Lanka Figure 6 - Exchange Rates US$ GBS JPY* Euro SDR 6

7 Table 4 : Consumer Price Indices Jan 29 Feb March April May June July August September October November December Colombo Consumer Price Index*(N) (22=1) All Items CCPI (N) Growth Rate % Month-to-month Point-to-point month M/A Note : The price indices were revised in January 28 and the new series is being used from this quarter. Source: Census and Statistics Department Figure 7: Inflation 25 2 % Point-to-point 12-month M/A 7

8 Table 5. Capital Market Information Market Assessment Jan '9 Feb March April May June July August September October November December 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 8

9 Figure 8 Equity Market: Indices Figure 9: Equity Market - Sector Indices Indices Indices All Share Price Index Milanka Price Index *1 MBSL Mid Cap *2 Hotels & Travels Construction Investment Trusts Beverage, Food & Tobacco Figure 1: Market Performance. Monthly Market Turnover (Rs. Mns) Foreign Sales (Rs. Mns) Market Capitalization (Rs. Billions) Foreign Purchases (Rs. Mns) Net Purchases (Rs. Mns) 9