SRI LANKA FINANCIAL SECTOR QUARTERLY UPDATE FIRST QUARTER 2004 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 respective organizations in subsequent reports, we will adjust our records accordingly. Performance of the Commercial Banking Sector : At the end of the 4th quarter of 2003, out of the total assets in the commercial banking sector, the two state commercial banks (SCBs) accounted for 46% while the private domestic banks (PDBs) accounted for 42%. In terms of deposits, the SCBs led with 47%, followed by the PDBs with 42%. In terms of advances, the PDBs recorded 47% while the SCBs followed with 41%. The PDBs, during the period under review, recorded an increase of 5.9% in terms of assets, 8.0% in terms of deposits and 8.4% in terms of advances. The four major private banks dominated the PDB category accounting for 90% of the assets, 92% of the deposits and 91% of the loans granted. The Non Performing Loans (NPLs), as a percentage of total advances in the commercial banking sector, declined from 16% at the end of the 3rd quarter to 14% in the 4th quarter. The decline came from the private domestic banks and the foreign banks. The CBSL has tightened provisioning requirements and also has introduced a discounting mechanism of the collateral value of the NPLs. The commercial banks recorded profits mainly due to the reduction in the interest rates which brought down the cost of funds for the banks. Since the economy has strengthened the recovery rates also have improved. Performance of the Licensed Specialized Banks (LSB) : At the end of the 4th quarter 2003, out of the total assets of the LSBs, the National Savings Bank (NSB) led with 62% followed by National Development Bank (NDB) (13%), DFCC Bank (12%), Regional Development Banks (5%) and the State Mortgage & Investment Bank (SMIB) (3%). In terms of their lending operations, NDB and DFCC led with 25% followed by NSB (22%), RDB (10%) and SMIB (8%). NPLs, as a percentage of total advances of the LSBs, remained at 12% during the 4th quarter. If the investment climate deteriorates again and there is a set back in economic growth, the development banks would be adversely affected. Open Market Operations & Interest Rates : During the 1st quarter of 2004, average prime lending rate stabilized at 9.3% in March 2004 while the repo rate and reverse repo rates had also stabilized at 7.0% and 8.5% respectively. Active open market operations which commenced in March, 2003 continued. The short term Treasury Bill rates have almost stabilized with one-year Treasury Bill rate increasing only marginally from 7.2% to 7.7% in March 2004. The offer rates in the interbank money market too have stabilized at around 7.7%. This trend was mainly due to the continued high liquidity in the market, the reduction of the CBSL rates, active open market operations and low public borrowings. This trend might be reversed if the government adopts populist policies. In addition, if there is a reversal in economic reforms, the disbursement of IMF- Bank PRGF and PRSC next tranches would be delayed causing pressure on the government revenue. The Central Bank officially launched the Scriplesss Securities Settlement System on February 13, 2004 formally completing "LankaSettle", the automated payment and settlement system. Thus, Sri Lanka Central Bank became the first in South Asia region to introduce this integrated automated payment and settlement Financial Sector Quarterly Update:1st Quarter 2004 system. The Central Bank will also introduce a "cheque imaging system" to bring down the clearing time from 5-15 days to 1-2 outside the Western Province to address the delays in retail payment and settlement systems. 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 marginally against all major currencies except Euro during the 1st quarter. The forex market has stabilized and deepened and the CBSL too has been an active player in the Forex market. In the run up to the election, the CBSL engaged the forex dealers in a close dialogue not to avoid speculative trading resulting in a sharp depreciation. The rupee depreciated against the Dollar by 0.6%, Sterling Pound by 3.5%, SDR by 0.2%, the Japanese yen by 2.8% while appreciating against the Euro by 2.2%. 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. With the elections and the uncertainty in the policy regime, exporters would have been cautious. In addition, both the PRGF and PRSC tranches have been further delayed. Tourist arrivals did not substantially decline despite the announcement of the elections. Inflation: The inflation has further declined in the 1st quarter of 2004. Point-to Point Index declined substantially from 5.0% in December 2003 to 2.5% in March. Monthly Moving Average Index declined from 6.3 % to 3.9% 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, people had not felt the favorable trends of the declining inflation as high cost of living was one of the major themes which the election campaign was conducted by the opposition. Capital Market Movements :. The investor sentiments have been strengthened since the cease fire since 2002. However, announcement of a snap election further added to the apprehension. The cease fire has continued despite a change in the political regime which signals a long term commitment to peace by all parties. A split between North and East LTTE cadres raised further uncertainties in the peace process but was contained within a short period of time. The stock market has been rather volatile reacting to the mixed signals during the run up to the elections. The ASPI has marginally increased from 1,062 in December 2003 to 1,284 and both Milanka and MBSL indices reflected a significant increase of 6.5% and 14.6% reaching 2,021 and 2,613 respectively. It could have been due to cashing in by short term investors. Increases were seen in banking, investment trusts, footware & textiles, palm oil and stores and supplies. Monthly turnover ranged from Rs.3.9 billion (US $ 40.1 million) to Rs.4.5 billion (US $ 46.2 million) during the quarter. Foreign investor transactions recorded a net inflow of Rs. 813 million (US $ 8.4 million) during the 1st quarter. Market capitalization increased from Rs. 263 billion to Rs. 314 billion. If political instability continues and the peace negotiations are stalled for a longer period, the investor confidence is likely to diminish. Report, Graphic Design & Concept : Sriyani Hulugalle Graphs Update:Malathi Ratnayake 10/6/2004 2 3 2004 e s & Quarter 1st snaoL atvirP citsem ankB 47% e Do atvirP B HN icr Update: knaB of 30% ankB 26% es al al ci secn s mmeoC er va ancvdA ankB Quarterly & cit skn Sector mmoC Ad es hertO 9% 3: ngier Ba skn 12% Loans: omD h pat Financial erugiF Fo Ba eta St laicremm A 3- naly e Se 21% amS ankB 14% s ankB 41% guriF ystemS Co Bankingl cit es ransactions.t 03 20 stisopeD e ci ativrP st skn % omDe Unit me Ba 42 BNH % 33 Do laicr kn % ankingB Commercia uarterQh knaB atvirP mme Ba 25 het of skn Co the fo 4t of cialre sti Ba Currency m end the moC- ngier skn % 12 eposD:A Foreign Fo Ba at 2 e laicr sknaBr 8% 2-e he Ot anl htap and kn % Structure As erugiF at skn % % 20 Ba 14 St ticsem mme Ba 46 guriF Sey maS Do Co ectl ref banks. Market Data 1: 2003. commercial 4, Table Banks stessA etavi ci st skn % me B to Pr Ba 42 Do ankBcitse Quarter dividualin % and HN laicr 30 kn knaB meoDe mmeoC Ba 26% relate taad cialre 1, Department m Table Commercial moC ngier atvirPfos skn s %11 of ankB % Supervision 1- Fo Ba ial 10 case nk Licensed erugiF e at rce m skn kn % % etssA-A-1 hertO htapm Ba Sa Ba 13 the St moC Ba 47 re naly in guiF Se 22% Only: CBSL: Note Source 4 2004 Quarter 1st Update: secn BI 8% SM Quarterly vadA B % NS 22 Sector Financial &snaoL B % ND 26 BSL: sB % 10 RD 3B er rs he 9% guiF Ot C % DFC 25 B % NS 62 Banks stessA sB 5% RD edz SBL B-1erug rs he pecialiS Fi 4% Ot sed C % BI 12 B Licen DFC % 3% SM ND 14 5 2004 s ar Quarter Ye 3 1st s dleiY. % 637. earY Av s Update: 15 emul 0002, s ar ie Ye urit c Quarterly sr eaY VodeliY.vA Mn.sR 2 % 15.8 717. 856. 656. e S 10 e Sector umolV nM.sR 0002, 0 0 0 nt s 00,2 20,1 50,1 e ay D nmr 4 e 36 Financial sareY6 deliYv.A % 509. 309. 75.8 308. 407. 966. 766. v o G f o 2004) e 2500 2000 nd sya 1, umolV Mn.sR 0002, 5001, 000,1 0002, 5001, er D 2 T 18 s earY5 deliY.vA dl % 87.9 29.8 70.7 ei Y : 5 e sya (Quarter umolV Mn.sR 0001, 0051, 0051, D gurei 91 F sdnoByr s earY4 deliY.vA % 779. 419. 10.9 837. 0 0 easurT emuolV Mn.sR 00,1 50,1 0052, 0 0 0 0 0 0 0 0 0 0 0 0 00,2 0. 0 0 0 0 0 0 0 0 0 0 10 9. 8. 7. 6. 5. 4. 3. 2. 1. 0. Operations % s earY3 deliYv.A 059. 50.9 447. % Market e umolV Mn.sR 5002, 000,1 0002, en % 957. 957. Op 2: sareY2 deliYv.A e umolV nM.sR 000,1 005 Lanka yl rebmev hcr Ju No Ma Table sayD deliY.vA 26.8 55.8 468. 038. 25.7 41.7 89.6 177. 247. 597. 697. 66.7 Sri % of estii ur 364 e umolV nM.sR 2 0 88,3 32,1 1962, 6673, 0 8 6 41,3 67,3 29,2 8471, 9711, 5372, 4821, 5 18 Bank en rebot yraurb slliByr sayD dleiY.vA 26.8 45.8 418. 028. 16.7 32.7 30.7 267. 307. 617. 677. 46.7 Central Ju Oc Fe % ecs.tvoG tyiruceSe of thfo asuerT 821 1 8 e Mn.sR 27 103 729 353 0 6 5 71 81 63 306 503 6102 937 6 ev 19 tyir y sayD umolV%dleYi. urC tua r 648. 638. 93.8 10.8 657. 267. 077. 13.7 53.7 54.7 96.7 637. Department, deliY M beme anuarJ y % chr 4: Ma pteS 4002 Av e 91 emul nM.sR 5363, 0612, 7 6 39,2 92,1 5151, 1302, 9951, 1 6 6 0 28,2 31,3 07,2 30,2 1911, Resea guriF Vo lir erb Economic tsug rebmec Ap Au De htn Mo liprA yaM em neuJ yluJ ugustA eptS obertcO rebmevoN rebmeceD yarunaJ 0402 yarubr Fe hcraM Source: 10 9 8 7 6 2004 Quarter 1st 39. 75.7 66.7 76.7 90.7 50.7 00.7 50.8 00.15 A/N A/N 0.5 00.7 96.4 Update: charM 149. 757. 637. 747. 867. 487. 007. 508. 00 0. 0. Quarterly 15. A/N A/N 185. yarureuF Sector 05. 07. Financial yarunaJ4002 159. 807. 627. 747. 857. 597. 007. 508. 00 15. A/N A/N 215. erbm 26.9 75.7 73.7 84.7 88.7 59.7 00.7 50.8 00.15 257. 757. 05.5 07.7 27.5 eceD 10-2. 00-5. reb 598. 837. 367. 477. 977. 067. 007. 058. 00 15. emvoN 25.70-1.2 25.80-0.5 0. 0. 245. 079. 507. 597. 657. 767. 487. 007. 508. 00 15. erboctO 007.-102. 25 05.6 57.7 11. 435. 00-5. 13.9 31.8 29.7 89.7 20.8 38.7 05.7 05.9 erb 00.15 528. emtepS 30-2. 521.10-0.5 56. 08. 35.5 679. 008. 827. 947. 048. 857. 507. 509. 00 15. tsuguA 258.0-3.2 25 0.8 11.-505. 5.6 665. 41 10. 758. 698. 828. 998. 668. 258. 25 10. 008.1 009.-003. 509.-006. 06. 58. 775. yluJ 44.10 57.8 56.8 48.8 20.9 45.8 52.8 52.10 00.18 009. 059. 06. 58. 00.6 00-3. 00-6. enuJ 54 10. 758. 908. 009. 069. 658. 258. 25 00 00 00 10. 18. 11.-003. 10.-006. 0.6 5.8 146. ankaL Sri ayM of lirpA3002 771.1 709. 589. 689. 809. 519. 009. 001.1 008.1 00 00 58. 11. 11. 06. 326. Bank 00-3. 00-7. ralt Cent, mic )%(setaRgnidnLe estaRgnidneLemirPegarevAknaBalciermmoC )%()R partmeneD setaR ngindeLemirPtsewoL BOLIS(etaRreffOkn sti ) ) ngsviaS DRWA(etaRti Research BaretnIakn )%(seatR nkaB Econo LairS yaD1 yaD7 htonM1 (%)v(AetaRterkaMyenoMlaC )%(etRaesahcrupReknaBlartn )%(et RaesahcrupReesrev Re Ce CB )%(etaRknBa gsn aviS stisopeDsgniavSknaBalciermmoC stisoepD stisopeD edxiF.rY1knaBalciermmoC gsnviaSlanoitaN poseDdexiF.ry1knaBsgnivaSlaonitaN poseDdethgieWeagervA Source: eatR etk 2004 arM v)A(etaRt 7 Quarter 1st oneyMlalC keraMyenoMllaC Update: and esatR Quarterly erffO htnoM1 Sector ankB- ayD7 Financial erntIa anklirS-7e yaD1 guriF 12 8 4 0 setaR % tesaRtse ngi nd )RD Lee W ternI mirPe e ealR ag 8: ervA etaR (AetaRtiso atRtis e guriF nkaBlaic ing nd epDdet poeD Lee ighe ed yraurueF er m imrP We htgei ag moC aleR ervA Wl eaR rebmeceD esatRti esatRgnid )RD rebotcO th n enLemirPe 14 12 10 8 6 4 2 0 -2 -4 -6 eposD Mo g/ni agervAk setaRgnidn WA(eatRtiso epD tsuguA anB Lend 6: e guriF alciermmoC LeemirPtsew )%( edthgei et Rakn We Lo Ba agervA enuJ lirpA 3002 20 15 %10 5 0 8 2004 Quarter 1st Update: Quarterly Sector Euro.eth Financial with SDR 134.33 137.67 136.58 136.22 132.55 134.97 136.00 140.06 143.93 145.00 146.48 144.23 enciesrr R cula SD tionan 107.95 115.40 111.06 111.36 105.35 109.69 110.27 114.85 Euro 121.59 120.79 122.92 118.91 eirth or Eu st es 81.00 82.00 81.00 82.00 83.00 85.03 87.30 88.13 90.52 92.00 90.00 93.08 placeder atR * JPY* reaAyc eg Y JP Movemen an Rate BSG 154.94 160.56 161.26 156.76 152.75 157.57 160.96 165.34 172.23 176.85 184.07 178.35 Curren chxE S 9: GB Euro the 97.03 97.16 97.06 97.11 96.77 94.36 94.89 96.42 96.71 97.34 98.75 97.32 of reugiF $ Exchange US$ Lanka Sri US 4: members of of April ayM June July 12 Bank Table End August tobercO ember archM all 2003 September ovN ecemberD January 0 0 0 0 0 0 0 February 20 18 16 14 12 10 80 60 40 20 Rates 2004 2002,yar ntraleCt, seepuR Janu Exchange From Departmen JPY; 100 Research per Economic Rupees Note: Source: 9 2004 Quarter 1st Update: 8 5 9 0. 2. 3. ch 3426 ar A/N A/N A/N M Quarterly 4 7 9 4 8 5 1 345 0.- 0. 4. 0. 2. 324. Sector Feb .4 2.0- 5 2 6 0. 5. 5.0- 5 2. 2004)( 3479 324. Financial n Ja hcraM 7.8 3.1 5.0 6.3 348 4.3 32 6.1 .13 beF ecD 1 6 5 8 2 2 6 2. 4. 6. 1. 3. voN 3384. 317. 0 1 9 2 7 7 2 ceD )4002( naJ A/Mh 0.- 3. 7. 0. 4. ontm ct 3299. 311. 2003-2004 O 3 3 8 6 0. 4. 7. 6 voN 12- t 8 8 Movements epS 3302. 312. 1. 4. 7 5 7 8 7 0 3 tcO Indices 2.- 3. 7. 2. 5. guA 3291. 313. noitalfnI:01 3 8 4 3 1 8 9 Prices 1.- 3. 8. 1. 5. reugiF Market tpeS ulJ 3376. 318. guA nt 0 Capital poi 3 2 n 4.5 9.0 1 7 luJ to-- Ju 344 1. 323. 3. 6. 6: 4 6 Consumer:5 2. 0 5 5 ntoiP 6. 9. 9 4 ay 339 321. 3. 7. M Table nuJ 8 5 rpA 0.- 3 9 8. 9. 3317 317. 5.0 8.0 yaM Table rpA dexnI ceirP 12 10 8 6 4 2 0 e s're icrP m Department s' er nsuoC sumnoC ob % th ob s teaR on nt m M/A poi moloC % Statistics 100) teaR nt M/A poi and moloC th to- h- o-t = s er th o-t 1952=100)( emtillA wor ntho ntho nt- nt- G Mont oiP m- eatr m- 12 G 1989( emtillA wor G oiP 12 Census Source: 10 2004 Quarter 1st 84 21 13 31 31 0 9 7 8 5 3 2 3 03 12 20 26 26 13 331 28 37 574 948 30 55 14 036 60 61 042 981 43 63 00 47 58 13 024 53 50 143 Update: hcr Mayarur 5 0 1 0 6 221 092 642 752 321 18 13 932 463 6 7 5 0 41 91 503 501 6 62 885 2 4 9 7 8 20 37 48 39 10 015 475 30 Quarterly ebF 497 325 845 311 11 70 81 75 00 2 6 5 7 27 34 85 2 1 15 59 83 13 44 21 4 7 1 23 Sector anJ4 12 21 25 27 13 291 812 018 32 176 67 002 47 58 12 554 65 42 013 002 2 Financial erb 62 98 79 63 57 8 1 1 3 8 1 7 5 10 18 22 24 12 241 26 30 812 646 26 28 14 565 55 95 66 931 13 88 80 44 12 11 693 93 14 79 632 em ecDbm 6 8 6 3 2 veoN 201 182 432 812 331 93 13 732 543 9 2 5 8 27 80 103 591 8 59 236 5 7 0 8 7 696 20 604 371 271 89 87 74 12 116 766 29 r 16 84 19 56 49 0 6 3 1 beotcOr 14 25 29 32 15 531 29 41 872 809 68 4 37 19 746 6 72 95 66 232 77 16 35 1 8 6 60 15 15 59 13 152 791 36 453 4 Information bemepteS 2921 3952 6022 9552 4631 80 7 9 15 27 36 672 249 1 2933 15 766 0 70 6956 172 0654 3951 4681 13 34 71 651 18 64 574- 083 83 94 60 29 82 2 6 7 5 27 31 79 0 8 15 70 23 74 42 61 0 8 3 51 t 10 20 23 26 13 511 631 355 31 496 67 112 27 12 13 115 361 85 562 us Market Aug 46 27 20 85 32 6 2 4 8 10 20 23 26 13 551 28 29 531 784 02 5 32 14 925 0 74 22 67 052 44 67 15 8 4 5 27 12 12 255 411 001 40 472 Capital yulJ 9 3 7 7 2 6. 041 062 302 772 331 25 16 982 013 8 0 5 8 16 47 513 471 8 57 607 6 9 4 7 8 695 19 972 291 381 15 40 59 82 051 14 13 24 Table neuJ 9 4 9 4 0 85 521 831 052 141 72 13 962 252 2 1 0 2 17 41 632 231 3 48 826 0 0 0 2 7 024 19 712 161 061 22 83 48 17 293 53 14 20 ayM aniespm aniespm lirpA 248 28 07 89 97 7 9 3 9 3 3 5 1 co co 14 18 19 10 341 31 20 571 144 22 25 11 654 53 43 38 991 30 55 26 10 489 332 21 17 44 941 25 25 est est larg larg the next Exchange the Stocko ec oc salcit )snM.sR( ) Covers- ) oversC- ac eu erv ILANKA Colomb x 1* nsM.sR( nsoiliB.sR( M- MBSL entm ss sesAt denIeci ex 2* Tob& acmr s esli niota es Prer ndIecirPa noruT 1* *-2 Source: paCdiM s anrusnI&e sle ytr ce nc oodF stsuTr seipl s )snM.sR(ses ndiI e, haP&salci Text& ngirut Sup& kearM ShalAl nkaliM BSLM orct naFi,s agr onitcurt ngdiolHdeifis ntemt peorP& acf oniatt nk ve Se Ba Be emhC nsoC etkarMyhlt veriD arewot Fo avTr&sleotH es nd nvI La nuaM srootM malplio anPl escivr Se esroSt ngdiaTr lizaitpaCtekraM onM ashcruPngieorF )snM.sR(selaSngieorF hacurPteN oniatzilatpiaCtekraM 11 2004 Quarter occ 1st obaT Update: sec & ndiI oodF, Quarterly Sector ortceS-tekraM geareveB gnirutcafun )sn llioi Ma B.sR(n hcraM iota e anc Financial tyuiqE: ur yraurbeF nsI &e s 12 er nanciF,s sturTtnem lizaitpaCtekra M naJ 4002 s)n guiF st . M.s ankB venI rebmeceD R(s e sea nca m rebmevoN chruPteN 0 00 0 0 0 00 0 orf )sn 600 50 400 300 200 10 erP rebotcO M.s etk htn arM rebmetpeS Mo (RselaSngi reoF 13: 2* e tsuguA )sn paC M.s d guriF yluJ (Rsesah Mi LS rcuPngi MB enuJ reoF )sn esc 1* yaM M.sR( ndiI: etkraM ndexI lirpA ecirP ervonruT etk ar 0 ty a 000 000 000 20 15 10 0005 000 My -5 0000 -1 hl quiE ankliM nto M 11 e guriF ndexI ecirP e 00 00 00 00 00 00 0 0 harSl 35 30 25 20 15 10 50 A secidnI 12 2004 Quarter 1st Update: Quarterly Sector Financial version.doc Fin-update-1Q-2004-web IN-UPDATE\ \F Sector SRIYANI\Financial\ PM ntsem 6:244 200 Docu 152396B 14, W Q:\My June