SRI LANKA FINANCIAL SECTOR QUARTERLY UPDATE THIRD 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 2st quarter of 2003, out of the total assets in the commercial banking sector, the two state commercial banks (SCBs) accounted for 47% while the private domestic banks (PDBs) accounted for 40%. In terms of deposits, the SCBs led with 47%, 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 7.7% in terms of assets, 4.3% in terms of deposits and 5.1% in terms of advances. The four major private banks (HNB, Commercial Bank, Seylan and Sampath) dominated the PDB category accounting for 83% of the assets, 92% 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 16.7 % in the 1st quarter of 2003 to 17.2% at the end of the 2nd quarter. The level of NPLs at the state commercial banks, marginally increased from 19.0% to 19.7% during the period under review while the foreign banks recorded an increase from 7.0% to 8.7% . A second rating agency, Lanka Ratings is to be set up jointly by the Ceylinco Group and the Rating Agency Malaysia. The government will also obtain a sovereign rating in two stages; initially from Fitch Rating and subsequently from Moodys or another reputed rating agency. The Finance Minister has requested the banks to recruit 1,800 graduates to resolve the unemployment problem. Performance of the Licensed Specialized Banks (LSB) : At the end of the 2nd quarter 2003, out of the total assets of the LSBs, the National Savings Bank (NSB) led with 63% followed by National Development Bank (NDB) (13%), DFCC Bank (12%), Regional Development Banks (5%) and the State Mortgage & Investment Bank (SMIB) (4%). In terms of their lending operations, NDB led by 28%, followed by DFCC (26%), NSB (20%), RDB (10%) and SMIB (9%). The NPLs, as a percentage of total advances of the LSBs, remained at 13% during the second quarter too. It was noted that except for NSB, all others still recorded NPLs higher than 14%. The NPLs continue to be at a relatively high level. Open Market Operations & Interest Rates : During the 3rd quarter of 2003, average prime lending rate continued its decline further ending up at 9.3% in September as against 10.4 % in June 2003. The repo rate and reverse repo rates were further reduced to 7.5% and 9.5% respectively in September. The Central Bank (CBSL) reduced it's Bank rate from 18% to 15% in August 15, 2003 in order to keep in line with the policy rates. Active open market operations which commenced in March, 2003 continues. The short term Treasury Bill rates have also reflected a decline with one-year Treasury Bill rate declining from 8.5% in June to 7.1% in September. The offer rates in the interbank money market too have stabilized at around 8%. The downward trend observed is mainly due to the continued high liquidity in the market, the reduction of the CBSL rates, active open market operations and low public borrowings despite a revenue shortfall. The government issued Treasury Bonds of longer term maturities of 10 and 15 years amounting to Rs. 6 billion during 3rd quarter. The CBSL is planning to issue 20 year bonds in October to further strengthen the long term yield curve which would be an incentive for promoting the corporate bond market. Financial Sector Quarterly Update:3rd Quarter 2003 Ministry of Finance claims that more than 50,000 had made declarations under the Tax Amnesty provided till August 30, 2003 which would help in widening the tax base. The Central Bank launched the Real Time Gross Settlement System (RTGS) together with the automated General Ledger system on September 8th, without any technical glitches. The integrated RTGS/SSSS will be named "LankaSettle" which will facilitate large volume transactions and scripless trading of government securities. Sri Lanka Central Bank would be the first in South Asia region to introduce this integrated automated payment and settlement system. Exchange Rate Movements: The rupee appreciated against all major currencies except for the Japanese Yen during the 3rd quarter. The forex market has stabilized and deepened and the CBSL too has been an active player in the Forex market. The rupee appreciated against the dollar by 2.8%, sterling pound by 2.3%, euro by 1.2%, SDR by 1.2% while the Japanese yen depreciated by 5%. The appreciation of the rupee against the dollar reflects the weakening of the dollar against other major currencies. Due to the improved export earnings and also the increased official aid flows, the SL Rupee has strengthened against major currencies. The exporters complain of an erosion in competition in the international market for SL products specially for Tea. European Union is reported to have agreed to extend a 5% reduction in import tariff for Sri Lankan exports. The Sri Lankan government support for EU at Cancun is reported to have hastened this decision. Sri Lanka is contributing to the thinking of the US of promoting more bi-lateral trade agreements and is negotiating trade agreements with Pakistan, Thailand, Singapore, Malaysia, in addition to the US. Inflation: The inflation has further declined in the 3rd quarter of 2003. The Point-to Point Index increased marginally from 4.5% in June to 4.8% in September and the Monthly Moving Average Index declined from 9.0% to 7.6% 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 government's improved fiscal management and the cautious monetary policy attributed to this trend. This has been further supported by the increased output in domestic food supplies and also the appreciation of the Rupee. Capital Market Movements :. The investor sentiments have been strengthened despite the continued problems in peace negotiations and the US re-designating LTTE as a terrorist organization. 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 reinforced by the overwhelming support demonstrated by the donor community. The capital market made history in the third quarter again. The ASPI has reached 1,292 from 1,049 while both the Milanka and the MBSL indices reflected an increase of 16% and 13% reaching 2,395 and 2,602 respectively. 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. Monthly turnover ranged from Rs.5.3 billion (US $ 54.0 million) to Rs.16.5 billion (US $ 175 million) during the quarter; highest ever recorded. However, the foreign investor transactions recorded a net outflow of Rs. 3.6 billion (US $ 39 million) during the 3rd quarter reflecting the instability of short term investments. The market capitalization increased to Rs. 308 billion. Hayleys MGT Knitting Mills Ltd. became the first company to issue dollar denominated 3 month commercial paper (US $ 700,000). Hemas Group issued an IPO of Rs. 600 million which was over subscribed, thus reflecting the excess liquidity levels of the financial market. Despite the setback in peace negotiations as well as continued opposition instigated strikes, the stock market continued its bull run and the investment analysts feel that the market is slightly overheated. This is a reflection of the investor confidence as well as the low deposit rates in the banking sector. Sri Lanka is currently a favored country in the emerging market category. Unlike in the past, the foreign investors continue to be active, especially in the blue chip companies in the financial sector and the hotel sector. Report, Graphic Design & Concept : Sriyani Hulugalle Graphs Update:Malathi Ratnayake 14/10/2003 2 3 3 200 Quarter & 3rd s etavi citsem s Pr ankB 45% anoL Do Update: knaB Quarterly cialre secnav SMIB 9% m Sector Advances moC Ad 20% 3: ngier NSB skn & NDB 28% Financial erugiF Fo Ba 11% eta icr s Loans ystemS St mmeoC ankB 44% al LSB RDBs 10% 3B: ers 7% Bankingl Oth DFCC 26% ransactions.t 03 e 20retr atvi citse gureiF Unit m positseD Pr Banks 41% Do ankingB Commercia Qua nkaB nd the 2 Currency of ercial of m end the moC- gnei Foreign 12% For Banks 2 lia and at e rc at St Structure As Figure mmeoC Banks 47% B ticsem NS 62% Do ectl ref banks. Market s 1: setssA Data RDB 5% 2003. commercial BSL 2, Table etaiv stice s B-1 40% Quarter dividualin Banks ssetsA Pr ankB Dom reugiF hers 3% to and Ot relate Bankla taad rcie Banks 1, Department m edz BI Commercial gn s DFCC 13% SM 4% Table 1-Com Forei ankB NDB 13% 12% of Supervision gure eta liacre s case nk St m Speciali Fi m ankB 48% the Ba Co in Licensed censed Only: CBSL: Li Note Source 3 4 200 Quarter 3rd dle s Yi % 019. 367. s Update: Year51 v.A earY3 umeolV nM.sR 0051, 0002, Quarterly deliY 009. 518. 717. esitir s sr % Sector v.A ecuS earY2 Yea 10 nM 0 0 0 umeolV s.R 001, 002, 002, tne mnr s Financial del 00. 00. veo ayD 2003) s Yi.vA % 834.1 003.1 13 12 011.1 90.9 05.9 03.9 75.8 03.8 04.7 G 364 3, fo Year6 meu nM s.R 000,2 005 5001, 0001, 000,1 5001, 0002, 5001, 0001, 0002, 5001, Voldel dnerT s ayD Yi % 43. 63. 39. d eli 821 (Quarter sareY5 14 13 12 802.1 002.1 00. - 11 100.1 100.1 789. 928. 077. Y Av. meu nM 5: - Voldle s.R 0743, 0521, 0002, 000,2 000,1 0001, 500,1 000,1 000,1 500,1 500,1 erugiF s ayD 91 Operations sdnoByrusaerT Yi % - 40. - 12 97.9 99.9 77.9 14.9 10.9 38.7 00. 00. 00. 00. 00. 00 00 9. 8. sar 293.1 242.1 090.1 14 13 12 11 10 Av. Ye4 nM 0 0 0 - - ume s.R 001, 702, 000,1 001, 000,2 000,1 000,1 005,1 005,2 000,2 Vol Market del 37. 02. 20. 20. 059. 059. 447. en sr Yi % 13 133.1 12 12 12 011.1 Av. Op Yea3 0 0 0 103 501 002 00 00 0 y 2: meuloV nM 20 20 002 s.R 5002, 0001, 0002, r anuarJ beme del 47. 9 y Yi % 12 11. 3002 Ma pteS sr 49.11 Table Av. Lanka Yea2 emul Vo nM.sR 0002, 0051, 000,2 estii Sri ur dle Ba ysaD4 Yi lir % 692.1 241.1 331.1 30. 60. rebmec tsug 11 10 099. 90.8 10.9 20.9 62.8 55.8 46.8 03.8 257. 14.7 Av. ecs.tvoG ofkn De Ap Au 36 ume nM 2 9 0 7 6 0 of tyiruceSe Central Vol s.R 53,2 15,2 99 174 170 7831 4313, 0061, 3502, 8283, 2031, 1962, 6673, 41,3 7863, ev thfo tyir illsByrusaerT del urC tua M ysaD Yi % 682.1 341.1 251.1 01. 03. 11 10 099. 80.8 10.9 20.9 62.8 54.8 41.8 02.8 167. 23.7 Av. deliY rebmev hcr yl 821 meu Voldel nM.sR 2 3 7 Department, No Ma Ju 56 56 89 592 014 7 88 118 067 20 11 712 38 10 729 353 0 71 168 4:e guriF r Research ysaD Yi.vA % 98.11 99.01 88.01 08 02 10. 10. 90.9 078. 019. 019. 468. 368. 938. 108. 65.7 627. beotcO y 91 meu nM 0 2 3 3 6 7 6 3 02 uarr en Vol s.R 422,2 807,2 026,3 815,1 698,1 9612, 232, 753, 542, 653, 102, 392, 921, 515,1 012, nomic 20 ebF Ju Eco r h anJ 13 12 11 10 9 8 7 Mont yluJ t e ugA epS tcO ovN ceD 0032 ebF hcarM lir Ap ayM unJ yulJ tsu ugA embept Se Source: 3 5 200 Quarter 3rd A/N A/N .56 0.8 Update: rbemetpeS 319. 138. 29.7 89.7 028. 837. 507. 509. 005.1 535. 679. 008. 2.87 4.97 048. 857. 507. 509. 0015. /A /AN .56 08. 665. t Quarterly ugusA 410.1 758. 9.68 2.88 998. 668. 258. 250.1 0018. Sector 0N0.90-03. 50.90-06. .06 58. 775. yluJ 4410. 578. 5.68 4.88 209. 458. 528. 5210. 00.18 009. 059. .06 58. 00.6 00-3. 00-6. Financial enuJ 5410. 758. 0.98 0.09 069. 658. 258. 2510. 0018. 0011. 0010. 0.6 58. 146. ayM 00-.3 00-.6 77.11 709. 8.59 8.69 809. 51.9 009. 0011. 00.18 liprA 00.11-003. 00.11-007. .06 58. 32.6 811. 99. 1.69 1.69 719. 49. 009. 011. 0018. 0011. 0011. .06 58. 466. charM 00-3. 00-7. 211. 809. 6.59 2.79 859. 49. 09. 011. 0018. 0011. 0011. .06 58. 866. beF 00-.3 00-.7 311. 49. 3.69 1.79 829. 59. 09. 011. .06 09. 187. naJ0320 008.1 001.10-03. 001.10-07. 212. 910. .701 .801 810. 4010. 89. 811. 0018. 0011. ceD 50-.3. 002.15-.7 .06 010. 507. 12 9.10 .701 .801 0.11 6.10 8.9 8.11 0018. ovN 0011.5-3. 0012.5-7. .06 0.10 087. 5.12 10 .801 .011 1.11 7.10 5.10 8.12 0018. 0211. 0012. .06 0.10 008. 00-4. 00-8. ctO 57.12 13.11 71.10 88.10 1211. 6310. 5011. 7512. 0018. 0111. 0012. .06 010. 208. Lanka 00-.4 16-.8 Sri peS 6312. 1311. 8510. 0011. 1311. 7410. 5011. 7512. 0018. 0011. 0012. .06 0.10 209. ofkn 00-4. 68-7. Ba ugA 43.13 13.11 88.10 96.10 4611. 7810. 5011. 7512. 0018. 0012. 0014. .07 011. 499. Central ylJu 00-.4 25-.8 Department, ) )%(seatRgnidenL setaRgnidenLemirPgearveAkanBalciermomC (%)R sti stisoepD sti sti poseD Research setaRngindeLemirPtesowL BOLIS(etaRrffeO nkaBrentI nkaaLirS yaD1 yaD7 htonM1 )%(v)A(eatRtekarMyeonMlalC )%(etaReashcruepRkanBalrtenC )%(eatReashcruepResrevReBC nomic )%(eatRkanB )%(seatRsgnivSa ngsviaSnkaBalciermomC poseDdexiFr.Y1kanBalciermomC ngsviaSnkaB poseDdexiF.ry1kanB ngsviaSlnaoitaN ngsviaSlnaoitaN )RDWA(eatRtisoepDdeghtieWgearveA Eco Source: 3 6 200 erb Quarter emt epS )v 3rd etk (A t us ar ugA eta M R et Update: yluJ rka oney Ml My alC e unJ neo Quarterly and Mlla ay M C Sector atesR lirpA erff et Financial O Ra hcra htno M M1 ankB- ebF nterI anJ ay a D 03 7 20 anklirS- ecD 7 ya e voN D1 guriF tcO 8 4 0 setaRt setaR ngdi )RDW 12 eserntI % enLemirPe aleR:8er agrevA etaR (AetaRtis guiF nkaB ing nd poeDdet etaRtisopeD Lee rebmetpeS imrP igheWe edhtigeW es alicremmoC aleR agervA aleR tsuguA atR yluJ gnid )R D enuJ enL W e A( mi atesRti yaM Pr eta 14 12 10 8 6 4 2 0 -2 -4 -6 es lirpA ega atR Rtiso h er gnid ont M eposD hcraM Av Dep ng/ beF knaBla enL ) e %( edthg ei Lendi naJ 3002 ci et W 6: er mirPt e Ra e ag ceD m kn er guriF moC eswoL Ba Av voN tcO 8 6 4 2 0 20 18 16 14 12 10 % 3 7 200 Quarter 3rd Update: Quarterly Sector Euro.eth Financial with enciesrr cula SDR 127.34 127.69 126.99 126.30 127.92 130.57 133.18 132.82 133.30 134.33 137.67 136.58 136.22 132.55 134.97 tionan eirth R SD st 94.92 94.75 93.97 94.20 95.85 100.31 104.75 104.16 104.87 107.95 115.40 111.06 111.36 105.35 109.69 Euro placeder 81.00 82.00 79.00 78.00 79.00 81.00 81.00 82.00 81.00 81.00 82.00 81.00 82.00 83.00 85.03 reaAyc or Movemen JPY* estaR Eu Curren ge Rate Euro Mo BSG 150.33 148.96 150.00 146.76 149.61 154.90 160.16 152.94 152.69 154.94 160.56 161.26 156.76 152.75 157.57 the of anhcxE:9 htn *Y JP Lanka er S Exchange Sri 4: 96.19 96.25 96.19 96.33 96.51 96.64 96.84 96.89 96.95 97.03 97.16 97.06 97.11 96.77 94.36 guiF GB members of US$ 12 Bank Table of July Aug Sep tcO all $ ovN ecD Jan Feb arM Apr ayM US June July 90 80 70 60 50 End August 2002 2003 2002,yar ntraleCt, 0 0 0 0 0 011 010 16 15 14 13 12 seepuR September Janu Rates From Departmen JPY; Exchange 100 Research per Economic Rupees Note: Source: er 3.0 .84 7.6 302.33 3 temb A/N A/N A/N 8 200 Sep 7. .52- 7.3 8.7 7. 0.2 3.5 Quarter st 313 3rd guuA 3291 3 3 1 8 9 Update: 76. .81- 4.3 8. 1. 5. yluJ 33 18.3 Quarterly en 0 5.4 0.9 2. 1 7 Ju 344 .31 323 3. 6. Sector 96 .42 0.6 5 5 9. 1. ay M 33 32 9.3 4.7 Financial l priA 3173 .80- 3 9 5 8. 9. 0 0 17.3 5. 8. 4 9 5. 1 5 ar M 334 .32- 9.7 9. 318 4. 8. 3 beF 4233 .11- 11 2 0.1 2 4 23.3 5. 9. 6 2 2 1 A/ M 10 anJ 461.53 .24 13. 326. 7. 10. h 2002-2003 2. ont .52 6 2. m 8 9. 7. x 12- Dec 3321 11.3 319 10.6 9 denI Indices 9. ovN .02 1.9 5.9 3 3. 11 323 31 1.8 ecirP nt 1 re Prices 75. .80 2.8 9 5 5 5 poi 9. Oct 31 09.3 8. 1.1 um htn to-- 8. 4 4 8 9 nso Mo nt epS .80- oiP 7. 3150 10. 307 7. 11. C:01 6 Consumer:5 guA 5. .72- 1. 4. 3. er 317 10 11 307 9.9 12 guiF h ont 1 5. 8. 1. 6 m ly .80- 2. 9. 3. to- 10 12 h- Table Ju 326 10 11 31 ont M 8 6 4 2 0 16 14 12 10 -2 -4 xednI ecirP' e ers Department ic Pr'sre mus Con Statistics um ob nsoC % e thno and t m % lo ) e t uss Rat m- A/M A/M bo s Rat Cen th to- -poinot- ht Cor 100 on = s th -poino-t ht on om Col 952=100)1( emitllA ow thno Gr M intoP -m eate 989 12 Gr (1 emitllA ow Gr intoP -m 12 Source: 3 9 200 Quarter 3rd Update: r 92 95 02 55 63 08 beme 12 23 26 29 14 15 772 693 672 249 93 32 511 766 007 95 66 172 65 95 68 31 43 17 74 40 13 14 165 18 64 45- 083 eptS Quarterly 515 tus 1083 2094 2360 2629 1382 1512 276 317 163 535 3179 150 649 708 6723 211 2774 1242 1361 5110 1368 853 256 Sector ugA 8 46 27 20 85 32 56 10 20 23 26 13 15 822 942 531 784 02 32 451 925 407 22 67 052 44 67 15 58 14 05 40 27 12 12 52 14 10 472 yulJ Financial 0491 0632 3072 7772 3321 6251 298 301 168 470 5153 147 578 760 6965 199 9742 2971 3881 515 10 4401 3591 82 248 neuJ 859 1524 1839 2054 1140 1372 296 225 172 411 2630 123 483 682 4020 190 2710 1162 1067 4822 1783 329 1453 202 ayM 248 28 07 89 97 47 14 18 19 10 13 193 032 571 144 22 25 191 654 335 43 38 991 30 55 26 10 489 33 23 152 711 44 941 liprA 739 1260 1575 1749 983 1187 312 183 153 371 2304 114 411 448 3702 172 2430 973 850 1560 645 584 61 174 Movements hcraM 497 45 69 34 12 15 17 809 49 12 123 811 541 823 68 23 151 284 504 02 37 861 67 25 719 518 969 282 77 511 761 ebF Market 794 anJ3 3451 6561 8651 0311 2721 352 193 173 413 4702 128 451 457 7343 196 5932 975 909 9411 629 386 243 186 200 5 5 4 6 2 3 0 1 5 3 6 5 3 9 7 8 2 2 6 2 8 1 81 137 170 185 104 125 38 20 17 41 263 13 48 45 354 19 268 91 90 111 17 23 35- 3 16 Capital 6: ecD 802 3391 75. 8471 0131 2591 355 196 182 402 7162 145 472 469 5353 200 6822 972 821 3861 166 453 287- 160 1638 ovN Table 820 1384 1726 1937 1007 1246 363 202 177 404 2801 145 483 479 3584 204 2860 990 811 2933 337 264 73 166 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 50 467 694 772 741 epS 752 1327 1562 1900 919 1048 352 188 140 329 1831 101 445 408 3444 196 2409 840 732 3052 1357 730 627 153 ugA 0 4 4 2 2 7 6 1 3 2 2 5 4 4 1 1 8 2 3 0 7 2 2 yulJ 70 121 145 172 87 99 31 17 13 31 79 175 42 38 344 18 239 76 68 199 26 25 14 aniespm aniespm co co 2002 25 25 e ocac salcit )nsM.sR( ) largest largest er t the en ex 1*x )nsM.sR( next Exchange the essm ssA ndIecirPe 2* obT& sec ancrunsI&e esi novurT ess )nsM.sR( )nsM.sR( oodF gsndiloH ndiI selitexT&r stsurT yter hacruP eslaS es onsiliB.sR(noiatzilati apC Covers- Stock ketarM harSlA ndeIecirPa ankliM paCdiMLSBM ortceS ancniF,s ankB age,erevB eucamarhP&salci onitucrt hemC onsC edifisreviD eawt ooF sleavrT&selotH ntemtesnvI oprP&d ngiurtacuf Lan anM sorotM ml ng paloi onsiatntalP seciverS upplS&seortS adirT niotalizaitpaCtekraM etkarMyhlt onM gneiorF gneiorF hascruP etN etkarM Covers- Colombo MILANKA- MBSL 1* *-2 Source: 3 September oc 10 200 August Tobac & d Quarter sec July ooF ngi 3rd ndiI urt June age, ac ort Update: ecS- May erveB nufaM etk April e Quarterly ar anc M March ur Sector yt nsI quiE Feb & e stsurT rebmetpeS 2003 Jan Financial 12: tsuguA e nanciF,s entmt urgiF Dec nkaB es nvI yluJ Nov enuJ Oct . ) 0 ec yaM 4000 3500 3000 2500 2000 1500 1000 500 secidnI anmorferP lirpA nsM.sR(selaSngier Fo etkarM h hcraM ontM 13:er beF guiF )snM.sR(s )sno sea naJ 3002 ceD chruPngieroF Billi.sR(noitazliatipaCtekraM 3seir ) sec Se voN nsM.sR( er ndiI tcO : novurT etk )snM.sR(s ar 00 00 00 00 0 M 200 150 100 50 000-5 00 sea 100- yt uiqE eir s2 etkarMyhlntoM chruPteN Se 11 er guiF 1seir 00 00 00 00 00 00 00 00 0011 0010 090 080 070 060 050 Se 19 18 17 16 15 14 13 12 secidnI