SRI LANKA FINANCIAL SECTOR QUARTERLY UPDATE SECOND QUARTER 2003 · 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 1st quarter of 2003, out of the total assets in the commercial banking sector, the state commercial banks (SCBs) accounted for 49% while the private domestic banks (PDBs) accounted for 39%. In terms of deposits, the SCBs led with 48%, which was followed by the PDBs with 40%. The PDBs, during the period under review, recorded an increase of 4.5% in terms of assets, 4 % in terms of deposits and 2% in terms of advances. The four major private banks dominated the PDB category accounting for 82% of the assets, 91% of the deposits and 90% of the loans granted. The Non Performing Loans (NPLs), as a percentage of total advances in the commercial banking sector, increased from 15.2 % in December 2002 to 16.7% at the end of the 1st quarter of 2003. The Hatton National Bank (HNB), the largest private domestic bank, has been put on the watch list of the local rating agency; Fitch Ratings(FR) who had earlier issued a SL A rating for HNB. However, during a recent review, the FR ascertained that the levels of NPLs in HNB have risen significantly. The FR report also highlighted that the HNB had very high exposure to a few borrowers who were non performing. Therefore, HNB issued 5 year unsecured debentures amounting to Rs. 2 billion to raise additional capital in the market and the issue was several fold over subscribed. IFC divested its shares in a small private bank; Nations Trust Bank (NTB) and the NTB declared a rights issue to the staff of the bank in order to broad base its ownership. The supreme court has issued a stay order on the Appeal Court cancellation of the liquidation of Pramuka bank and the Central Bank (CBSL) has been granted two weeks to examine other options before the liquidation. The Zurich Insurance group had sold its shares in the NDB-Zurich insurance Co to a consortium consisting of Bank of Ceylon and NDB. NDB, through one of its subsidiaries CDIC, is expected to raise additional capital in the market for this acquisition. The DFCC has made a formal offer to buy the MERC bank; a small troubled bank. Given the high liquidity levels in the market, there is pressure on the banks to reduce interest rates. The Central Bank is continuing the media campaign to educate the public with regard to the risk of investing in unregulated financial institutions. Performance of the Licensed Specialized Banks (LSB) : At the end of the 1st quarter 2003, out of the total assets of the LSBs, the National Savings Bank (NSB) led with 62% followed by National Development Bank (NDB) (16%), DFCC Bank (12%), Regional Development Banks (5%) and the State Mortgage & Investment Bank (SMIB) (4%). In terms of their lending operations, NDB led by 30%, followed by DFCC (26%), NSB (24%), SMIB & RDB (9%). The NPLs, as a percentage of total advances of the LSBs, declined from 14% to 13% in the first quarter of 2003. Financial Sector Quarterly Update:2nd Quarter 2003 Open Market Operations & Interest Rates : During the 2nd quarter of 2003, average prime lending rate continued its downward trend further ending up at 10.4% in June as against 11.8 % in March 2003. The repo rate and reverse repo rates further declined to 8.25% and 10.25% respectively in June. Active open market operations commenced in March, 2003. The short term Treasury Bill rates have also reflected a decline with one-year Treasury Bill rate declining from 9.2% in March to 8.5% in June. The offer rates in the interbank money market too have stabilized at around 9.0%. The downward trend observed is mainly due to the continued high liquidity in the market, the reduction in the CBSL rates and the active open market operations. The government continued to issue Treasury Bonds of longer term maturities of 3 to 6 years but has not issued 10 and 15 year long term maturities since the previous quarter. The IMF continues to provide technical support to the Central Bank on open market operations. Exchange Rate Movements: The rupee further depreciated against all major currencies except for the Japanese Yen although the depreciation against dollar was marginal. The forex market has stabilized and deepened and the forward market activities have increased. The rupee depreciated against the dollar by 0.1%, euro by 5.9%, sterling pound by 5.6%, SDR by 2.5% while the Japanese yen continued to remain stable. As the Gulf war did not linger on, the adverse impact of the war on the tea exports and tourism was not significant. The floods in the southern province might have a lagged effect on low grown tea which is yet to be seen. However, the unprecedented aid pledged at the Tokyo Donor Conference would cushion any adverse impact in the short run. Some of the economic analysts predict an appreciation of the rupee given the unexpected official flows which might erode export competitiveness of the country. In addition, Sri Lanka has been identified as a "potential candidate" for a US free trade agreement. This would have long term favorable implications for the country's external trade as US is a major trading partner (41% of exports). Inflation: The inflation has further declined in the 2nd quarter of 2003. The Point-to Point Index decreased substantially from 7.9% in March to 4.5% in June and the Monthly Moving Average Index declined from 9.9% to 9.0% during the same period reflecting the lagged effect of the inflationary trends during the past. The decline in the point to point index is mainly due to the low prices in paddy and vegetables compared to last year. The inflation reflected a downward trend despite the adverse weather conditions that prevailed in the country, especially in the Southern and Central Provinces. Capital Market Movements :. The investor sentiments still hold strong despite the setback in peace negotiations and non participation of the LTTE at the Tokyo Donor Conference. The continuation of the conflict-free environment signals a long term commitment to peace by all parties despite continuing disagreements. The investor confidence has been strengthened by the overwhelming support shown by the donors. The second quarter recorded historic levels in the capital market indices. The ASPI has reached 1049 from 739 while both the Milanka and the MBSL indices reflected an increase of 64% and 47% reaching 2063 and 2307 respectively. Monthly turnover ranged from Rs.2.3 billion (US $ 24.0 million) to Rs. 10.5 billion (US $ 108.4 million) during the quarter; highest ever recorded. The foreign investor activities recorded a net inflow of Rs. 1.6 billion (US $ 16.3 million) during the 2nd quarter. The market capitalization increased to Rs. 248 billion. This is a reflection of the investor confidence as well as the result of the tax amnesty granted by the government and the declining interest rate regime in the banking sector. Unlike in the past, the foreign investors have been quite active, especially in the blue chip companies. The Milanka index is much more buoyant than the MBSL; an indication of the interest of the investor in the upper end of the market. Increases have been reflected in all indices but the heavily traded sector had been the banking sector. Colombo Stock Exchange has opened its second branch in Kandy in order to strengthen and broaden the local investor base. Report, Graphic Design & Concept : Sriyani Hulugalle Graphs Update:Malathi Ratnayake 10/07/2003 2 3 3 200 Quarter 2nd & etaiv cit s es Pr ankB 43% Dom Update: Loans nkaBl Quarterly rciae Sector m vancesdA omC s 3: Financial Foreign ankB 11% BI et icr sec 9% s SM Figure ystemS Sta mmeoC ankB 46% anvdA B % NS 24 al &sn B % oaL ND 30 Bankingl ransactions.t 2002 s e atvi citse BSL: sB Unit 9% RD arter positeD m Pr Banks 40% Do 3Ber rs he 2% Qu ankingB Commercia th nkaB guiF Ot C % DFC 26 the uroF Currency of ercial of m end moC- gnei Foreign For Banks 12% and the 2 lia e rc at Structure at St As Figure mmeoC Banks 48% ticsem Do ectl B ref banks. Market NS 62% Data 1: 2003. commercial s 1, Table Banks stessA etavi ci st skn RDB 5% % setssA dividualin me Ba 39 Quarter Pr to Do BSL and k anB B-1 relate al cire Banks reugiF hers 1% Ot taad 1, Department m edz Commercial moC ngier skn Table % 12 1- Fo Ba e laicr of 12% BI Supervision erugiF case at skn % pecialiS DFCC SM 4% nk St mme Ba 49 NDB 16% the Ba Co Licensed sed in Only: CBSL: Licen Note Source - eldiY 9.10 % arseY v.A 15 Mn 3 1,500 4 Rs. 200 Volume ieldY 9.00 s % Quarter 2nd arseY v.A earY3 10 Mn 1,000 Update: Rs. esitir s Volume - ecu earY2 9.90 9.05 9.03 S Quarterly sraeY ieldY % 14.18 14.38 13.00 13.00 12.00 11.10 v.A tne - s Sector 6 mnr Mn 500 1,000 2,000 1,500 1,000 1,000 1,500 2,000 1,500 ve ayD o Volume Rs. - G 364 f o Financial sraeY ieldY % 14.23 14.34 14.34 13.36 12.93 12.80 12.00 11.00 10.10 10.10 9.78 8.92 v.A dner - T 5 Mn 200 d syaD2 1,500 3,470 1,250 2,000 2,000 1,000 1,000 1,500 1,000 1,000 1,500 eli 18 Volume Rs. Y - - 5: sd ieldY % 13.89 13.92 12.42 12.40 10.90 9.97 9.99 9.77 9.14 9.10 eru s Bon y sraeY v.A gi ayD - - F 91 4 660 14 13 12 11 10 9 8 Mn 1,000 2,700 1,000 1,000 2,000 1,000 1,000 1,500 2,500 Treasur Rs. Volume Operations sraeY ieldY % 13.79 13.73 13.31 12.20 12.20 12.20 11.10 9.05 9.05 v.A Market 3 Mn 3,250 3100 1500 2000 2000 2000 2000 2,500 1,000 en Volume Rs. Op 11.9 2: sraeY ieldY % 14.08 12.74 11.94 v.A r 2 Mn 3,000 2,000 1,500 2,000 beme Table Volume Rs. estii pteS rebmec hcr De Ma sy ieldY ur % 14.00 13.72 12.96 11.42 11.33 11.30 10.60 9.90 8.90 9.10 9.20 8.62 8.55 8.46 Da v.A 364 Mn 35 990 ecs.tvoG 2,258 2,532 2,159 1747 1706 1378 3,143 1,600 2,035 3,882 1,320 2,619 of tyiruceSe Volume Rs. ev thfo y eldiY tyir tsug rebmev uarr Bills sy % 13.14 13.17 12.68 11.34 11.25 11.10 10.30 9.90 8.80 9.10 9.20 8.62 8.54 8.41 urC tua Au No ebF M y Da v.A Lanka deliY 182 Mn 415 483 562 563 897 259 401 887 811 706 1120 271 1038 972 Sri of 4:e Treasur Volume Rs. y % 9.90 8.70 9.10 9.10 8.64 8.63 8.39 Bank guriF yluJ anuarJ sy eldiY % 13.19 12.98 11.98 10.99 10.88 10.80 10.20 02 rebot 20 Oc 3002 Da v.A Central 91 15 14 13 12 11 10 9 8 Mn 3,327 1,955 2,242 2,780 3,602 1,815 1,698 2,169 2,230 3,752 2,543 3,653 2,106 2,397 Volume Rs. Source: h Jan y y Mont Ma June July ugA t Sept Oc Nov Dec 2003 Feb March prilA Ma June 3 5 200 44. 25. 58. Quarter 10 75.8 5.68 4.88 02.9 54.8 25.8 10 008.1 A/N A/N 0.06 006. 2nd enuJ Update: 450.1 578. 0.98 0.09 609. 568. 528. 520.1 00. 5.8 18 A/N A/N 0.06 416. yaM Quarterly 77. 11 079. 8.59 8.69 089. 51.9 009. 001.1 008.1 A/N A/N 0.06 58. 32.6 Sector liprA 8 11. 99. 1.69 1.69 179. 49. 009. 0 11. 00. 18 A/N A/N 0.6 58. 646. Financial hcraM 2 11. 089. 6.59 2.79 589. 49. 09. 0 11. 00. 18 A/N A/N 0.6 58. 686. beF 3. 11 4.9 3.69 1.79 289. 5.9 0.9 0. 11 00. naJ 18 001.10-0.3 00. .06 0.9 11- 817. 007. 2003 2 9 8 0 12. 10. 7.01 8.01 8 10. tes 040.1 89. 11. 00. 18 001.1- 00. 0.6 ceD 50.3. 125-.7 10. 057. Ra 21 9 10. 7.01 8.01 0 6 11. 10. 89. 8 11. 00. 18 terest ovN 001.1-53. 00. 0.6 0 125-.7 10. 087. In 5 01 12. 8.01 0.11 1 7 5 8 11. 10. 10. 12. 00. 3:elbaT 18 201.1- 00. 0.6 0 tcO 00.4 120-08. 10. 008. 57 13 71 88 12 63 50 75 12. 11. 10. 10. 11. 10. 11. 12. 00.81 01 11.0-04. 00.21- .06 0. 10 208. 16.8 peS 63 13 85 00 12. 11. 10. 11. 311.1 470.1 051.1 572.1 00. Lanka 18 001.1- 00. .06 0. guA 00.4 128-67. 10 029. Sri ofkn 43 13 88 96 13. 11. 10. 10. 641.1 870.1 051.1 572.1 00. 18 002.1- 00. .07 0. yluJ 00.4 145-28. 11 949. Ba Central ) Department, ) Eco (%steaRgnidneL setaRgndineLemirPegarevAknaBlaicrem %()R BO LIS(etaRreffO )%()v )%(et stisopeD sti Research setaRgndineLemirPtse nk BaretnIa nk omC owL LairS yaD1 yaD7 ht onM1 (AetaRterkaMyenoMllaC Raesahcrup ) )%( gsnviaSknaBs )RDWA(etaRti nomic ReknaBlartn Ce )%(eatReashcruepReserevRBC poseDdethgie etaRknaB %(setaRsgnivaS stisoepDsgniavSkanB stisopeDdexiF.rY1knaB alciermmoC alciermmoC ngviaSlnaoitaN poseDdexiF.ry1knaBsgnivaSla onitaN WegarevA Source: 3 6 200 e Quarter unJ 2nd etk arM ya M li )vA(etaRtekr Update: prA oneyMlalC hcra Mayen M Quarterly and ebF MollaC es Sector atR naJ erffO et 0302 Ra htno c De M1 Financial ankB- voN er ntI a tcO ayD7 anklirS- epS 7 e ugA yaD1 guriF yluJ 16 12 8 4 0 % setaR setaRtseretnI ing nd )RD Lee W imrPe ag enuJ aleR ervA etaR etaRtis ngi poeD yaM se 8:e nd (AetaRtisopeDdet at ighe ed R nkaBliac Lee lirpA ) R er D m mirP We htige ag hcraM gnidne guriF W L e A( moC aleR ervA WlaeR tesa beF mir eta Rti P R e naJ 3002 seta ti ag R th er n Mo epos D/gn ceD Av k gnidne ospe D voN an L ) e %( dethgie 16 14 12 10 8 6 4 2 0 -2 -4 -6 Lendi tcO mir W P 6: Blaicre eta e R e m ag peS tse w guriF mo nka erv C Lo B A guA yluJ 8 6 4 2 0 20 18 16 14 12%10 3 7 200 Quarter 2nd Update: Quarterly Sector Euro.eth Financial with enciesrr 4 9 9 0 2 7 8 2 0 3 7 8 cula RDS 27.31 27.61 26.91 26.31 27.91 30.51 33.11 32.81 33.31 34.31 37.61 36.51 tionan R SD eirth st 92. rouE 94 75.49 97.39 20. 94 85.59 31 75 16 87 95 40 06 100. 104. 104. 104. 107. 115. 111. placeder or Eu .00 .00 .00 .00 .00 .00 .00 .00 .00 .00 .00 .00 reaAyc estaR Movemen ge 81 82 79 78 79 81 81 82 81 81 82 81 JPY* Curren Rate Euro anhcxE:9 htn *Y JP Mo SBG 0.33 8.96 0.00 6.76 9.61 4.90 0.16 2.94 2.69 4.94 0.56 1.26 the er 15 14 15 14 14 15 16 15 15 15 S 16 16 of Lanka guiF GB Exchange 9 5 9 3 1 4 4 9 5 3 6 6 Sri 4: $ members of 96.1 96.2 96.1 96.3 96.5 96.6 96.8 96.8 96.9 97.0 97.1 97.0 $ US 12 US all Bank Table 16 15 14 13 12 0 0 0 0 0 011 01090 80 70 60 50 ly g p of Ju Au Se tcO v c n b No De Ja Fe arM r e seepuR Ap 2 3 yaM Jun 2002,yar ntraleCt, End 200 200 Janu Rates From Departmen JPY; 100 Research Exchange per Economic Rupees Note: Source: 3 8 200 Quarter 2nd Update: Quarterly en 0 .54 0.9 A A Ju 344 .31 N/ N/ A/N Sector 96 .42 .06 5 5 9. 1. ay M 33 32 9.3 4.7 Financial lripA 3173 .80- .38 9 5 9. 0 0 17.3 5. 8. 4 5. ar M 334 3.2- 9.7 9.9 A/ 318 4.1 8.5 M .11- 11 2 3 2 4 ht Feb 3423 10. 23.3 5. 9. on m 5. .24 3461 6.31 2. 2 10 12- 7. 10.1 Jan 326 x 2002-2003 2 21. .52 6.9 2 9. 8.7 6 denI Dec 33 .311 31 0.1 Indices 9 3 voN 239.3 .02 .19 5 1 9. 13.3 8. 11 ecirP re ntiop- 1. tot-n Prices .80 .28 9 5. 5 um htn 9. oiP Oct 3175 309 8. 11.5 Mo 8 ons epS 50. .80- .47 4. 9. 31 10 073 8.7 11 C:01 6 e h Consumer:5 guA 175.3 .72- .101 4 9 3 11 07.3 9. 12. guriF ont 1. 1 9 3 Table yluJ .80- m-ot-h 3265 .801 11. 312.6 10. 12. ont M 16 14 12 10 8 6 4 2 0 -2 -4 xednI ceirP e ers' ic m partmenteD Pr'sre nsu Co mu ob tisticsaSt nsoC % e thno % A/ m lo e t A/ and o s Rat th m-ot- tniop- M M ht 100) s Rat ht th lomboC Census 952=100)1( emitllA ow thno tot-ni Cor on = -m eate 89 Gr M Po 12 Gr (19 emitllA -poinot- on ow Gr ntioP -m 12 Source: 3 9 200 Quarter 49 63 07 77 32 25 10 20 23 27 13 16 982 013 681 704 15 35 471 785 607 96 56 991 74 97 88 15 40 59 82 29 12 13 105 14 13 842 2nd uneJ 9 4 9 4 0 2 6 5 2 1 0 3 3 2 0 0 0 2 7 2 3 9 3 Update: 85 152 183 205 114 137 29 22 17 41 263 12 48 68 402 19 271 116 106 482 178 32 145 202 ayM Quarterly 4 8 7 9 7 7 9 3 7 4 2 9 5 3 3 9 0 5 8 3 5 1 82 142 180 198 109 134 31 20 15 41 252 11 46 53 384 19 263 105 94 233 21 17 44 491 Sector liprA 9 0 5 9 3 7 2 3 3 1 4 4 1 8 2 2 0 3 0 0 5 4 73 16 Financial 126 157 174 98 118 31 18 15 37 230 11 41 44 370 17 243 97 85 156 64 58 471 hcarM 749 1245 1569 1734 980 1249 312 181 154 382 2368 115 428 450 3702 186 2567 971 851 996 228 77 151 671 ebF 794 anJ 1345 1656 1865 1031 1272 352 193 173 413 2470 128 451 457 3734 196 2593 975 909 1941 629 386 243 681 0032 815 Movements 3751 7041 8561 0421 2531 380 201 175 413 6362 135 483 459 5473 198 6822 912 906 1121 178 231 53- 361 ecD 802 Market 3391 75. 8471 0131 2591 355 196 182 402 7162 145 472 469 5353 200 6822 972 821 3861 166 453 287- 061 1638 ovN 820 Capital 3841 7261 9371 0071 2461 363 202 177 404 8012 145 483 479 5843 204 8602 990 811 9332 337 264 73 661 6: tcO 578 64 15 14 18 84 14 18 20 10 11 973 172 861 264 86 29 721 025 245 10 34 102 62 25 799 208 84 50 467 694 772 471 Table epS 527 27 62 00 13 15 19 199 48 10 523 881 401 293 31 18 011 454 084 44 34 961 09 24 408 327 52 57 30 13 307 276 351 ugA yulJ 007 14 54 22 12 14 17 728 979 163 711 331 123 52 97 17 254 843 44 34 811 91 23 687 826 93 19 602 572 2 241 2002 aniespm aniespm e oc 1* salciute )snM.sR(re )sn co co 25 25 ntem )snM.sR( ) illioB.sR(n largest largest ssessA etkraM dexnIecirPearhSlA the dexnIecirPa 2* acmr st ovnurT es next Exchange ankliM paCdiMLSBM secdinI ncaursnI&e obacT&d nc ooF, onit ngsdiolH eslitx tioaliz Te& usrT yt )snM.sR( gniurt esil nsM.sR( es the s Covers- Stock orct naFi,sk age haP&salci ucrt edifis earw ml oniat gni Covers- Se anB everB emhC nsoC acuf etkarMyhlt veriD ootF selvarT&seltoH entmt operrP&d nvesI Lan anM sorotM paloi antlP esciverS uppS&seortS adrT noitazliaitpaCtekraM onM ashcurPngieorF esalSngieorF ashcurPteN itapaCtekraM Colombo MILANKA- MBSL 1* *-2 Source: June o 3 cc 10 200 May baoT & Quarter April odoF 2nd escdinI March ort gnirutcafun Feb Update: ecS- ge,areveB Ma etk 2003 Jan enuJ Quarterly arMyt Dec Sector ecnarusnI quiE Nov & s yaM Oct Financial 12: e sturTtnem lirpA )snM.s urgiF Sep ecnaniF,skn st Ba venI Aug . hcraM 2002 July ec (RselaSngireoF beF 00 00 00 00 00 00 00 0 0 40 35 30 25 20 15 10 50 secidnI anmorferP naJ 3002 etkarM: )snM.s h ceD ontM 3seir 13erugFi voN (RsesahrcuPngireoF )snoilliB.sR(niotalizaitpaCtekraM tcO Se peS esci )snM.sR(revonruT s)nM s.R(s ndI guA : etk 2seir ar Se yluJ 2002 etkraMyhlntoM seahcruPteN M yt quiE 00 00 00 00 00 00 0 120 100 80 60 40 20 000-2 11 e guriF 1seir Se 00 00 00 00 00 00 00 0 0 0 0 19 18 17 16 15 14 13 00 0110 12 00 090 10 80 70 60 50 secidnI