SRI LANKA FINANCIAL SECTOR QUARTERLY UPDATE FIRST 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 4th quarter of 2002, out of the total assets in the commercial banking sector, the two state commercial banks (SCBs) accounted for 49% while private domestic banks (PDBs) accounted for 38%. In terms of deposits, the SCBs led with 49%, which was followed by the PDBs with 40%. The PDBs, during the period under review, recorded an increase of 6% in terms of assets, 4 % in terms of deposits and 7% in terms of advances. The four major private banks dominated the PDB category accounting for 82% of the assets, 90% of the deposits and 88% of the loans granted. The Non Performing Loans (NPLs), as a percentage of total advances in the commercial banking sector, were 15.2% at the end of the 4th quarter 2002 as against 15.7% at the end of the 3rd quarter. PB appointed a new General Manager and assigned restructuring to the former CEO of the bank. The Pramuka Bank still remains closed and the liquidation process is yet to commence. The two small commercial banks have not concluded discussions with potential investors to inject capital. Bank of Ceylon (BOC) is expected to help in setting up a holding company to manage state assets in a more profitable manner. A new chairperson (Mrs. Sumi Moonasinghe) has been appointed to the BOC. The Standard Chartered Grindlays bank merger has been concluded and it is expected to play an active role in the banking sector. The Ministry of Finance is drafting legislation to set up an asset management company to take over the NPLs of the state banks. With the enactment of the new Consumer Protection Act, the banking sector fears rigid regulation (e.g. interest rates). The Central Bank (CBSL) has approved a Code of Conduct for banks, which will be used as a self regulatory mechanism. The government has introduced mandatory rating for banks, which will bring better discipline in the financial sector and improve disclosure policies and governance. The Institute of Chartered Accountants of Sri Lanka also has required the banking sector to disclose measures adopted for good governance in their annual reports. The government will move away from the insurance industry with the divestiture of 90% of its shares of Sri Lanka Insurance Co. Ltd (SLIC) to a local consortium led by Distilleries Corporation Ltd which has significant stakes in insurance(UAL), banking (HNB, Commercial and DFCC), corporate sector (Aitkens Spence, Stassen). Performance of the Licensed Specialized Banks (LSB) : At the end of the 4th quarter 2002, out of the total assets of the LSBs, the National Savings Bank (NSB) led with 60% followed by National Development Bank (NDB) (17%), DFCC Bank (13), Regional Development Banks (5%) and the State Mortgage & Investment Bank (SMIB) (4%). In terms of their lending operations, NDB led by 31%, followed by DFCC (25%), NSB (24%), SMIB & RDB (9%). The NPLs, as a percentage of total advances of the LSBs, declined from 17% to 14% in the last quarter of 2002. Given the economic performance of the last two years, the NPLs continue to be on the high side. NSB has been rated AAA by the Fitch Rating agency but has indicated that the NSB needs to expand its activities. Financial Sector Quarterly Update:1st Quarter 2003 Open Market Operations & Interest Rates : During the 1st quarter of 2003, average prime lending rate continued its downward trend and ended up at 11.8% in March as against 12.2 % in December 2002. The repo rate and reverse repo rates further declined to 9.0% and 11.0% respectively in March. Active open market operations commenced on March 1, 2003. The short term Treasury Bill rates have also reflected a decline with the one-year Treasury Bill rate marginally declining from 9.9% in December to 9.2% in March. The offer rates in the interbank money market too have stabilized at around 9.6%. The downward trend observed is mainly due to the continued high liquidity in the market as well the active open market operations. The government continued to issue Treasury Bonds of longer term maturities of 3 to 6 years and CBSL also issued 10 and 15 year long term maturities for the first time in order to develop a long term yield curve. The government is working with the CBSL to set up an independent Public Debt Office with technical support from international Financial Institutions. Exchange Rate Movements: The Rupee slightly depreciated against all major currencies except for the Sterling Pound and the Japanese Yen. Despite the war in Iraq, there was no pressure in the foreign exchange market. This is partly a reflection of further weakening of the Dollar and increase in foreign exchange inflows. The forex market has stabilized and deepened due to the increased forward market activities. The Rupee depreciated marginally against the Dollar by 0.3%, Euro by 4.4%, SDR by 2.0% while Japanese Yen has stabilized. The Sterling Pound marginally appreciated by 1.4 % during the first quarter of 2003. There can be a fall out of the war especially on tea auctions in Colombo and also trigger a decline in remittances and earnings in tourism. It would be a double hit for the tea industry given the bumper crop and the Gulf War. The government has already assured support to the tea industry. However, with the expected official flows from both IMF and the World Bank for the poverty reduction support program, the adverse impact would be cushioned. Inflation: The inflation has shown a declining trend in the 1st quarter 2003 specially given the recovery of the agricultural production. If the Gulf war continues, there can be pressures on fuel prices. The Point-to Point Index decreased from 11.3% in December to 7.9% in March while the Monthly Moving Average Index increased from 9.6% to 9.9% during the same period reflecting the lagged effect of the inflationary trends during the past. There was pressure on the inflation in January due to seasonal price variations aggravated by the rains. The rate of inflation has dipped substantially and has reached a single digit. However, the recent price increase in petrol and the proposed expected increase in telecommunication tariff, may put pressure on the inflation. The expected bumper harvest in paddy in the Maha season will soften the effect to a greater extent. Capital Market Movements :. The investor sentiments still hold strong with the continuing peace negotiations and the conflict free environment. However, the first quarter of 2003 showed a decline compared with the previous quarter. The ASPI further declined from 815 to 739 while both the Milanka and the MBSL indices reflected a decline of 6% reaching 1,260 and 1,575 respectively. Monthly turnover ranged from Rs. 1.0 billion (US $ 10.3 million) to Rs. 1.9 billion (US $ 19.6 million). The foreign investor activities recorded a net inflow of Rs. 454 million (US $ 4.6 million) during the 1st quarter which arrested the net outflows. The market capitalization marginally increased to Rs. 177.0 billion. The prolonged war in Iraq and its adverse impact might cause ripples in the stock market. There had been changes in the top management of the Securities Commission and the Colombo Stock Exchange. The corporate sector is concerned about governance and has introduced certain measures to strengthen corporate governance. Report, Graphic Design & Concept : Sriyani Hulugalle Graphs Update: Krishantha Kumarasinghe 8/4/2003 2 3 2003 Quarter 1st & etaiv cit s es Pr ankB 43% Dom Update: Loans e nkaBl atvirP B aicr HN 30% Quarterly of rciae es mmeoC ankBl 25% Sector m vancesdA s anc omC s dvA ankB & cit 3: Financial Foreign ankB 12% es s et icr s Loans: omD reh Ot ankB 12% h Figure ystemS Sta mmeoC ankB 45% A al 3-e naly pat kn Ba 13% Se 20% amS guriF Bankingl ransactions.t 2002 arter stisopeD etavi ci st skn Unit % me Pr Ba 40 e Do Qu Commercia th knaB atvirP cr BNH kn ankingB het s 34% Balia 22% the uroF mmeoC of cialre ofsti of m ankBcit Currency end moC- ngier skn Foreign % es s 12 her Fo Ba Ot 10% and the 2 ankB e laicr Depos: Dom 2-A Structure at As erugiF at skn % h St mme Ba 48 gure Co Fi naly pat ticsem Do Se 21% amS ankB 13% ectl ref banks. Market Data 1: 2003. commercial 4, Table Banks stessA e ci k ativrP st skn % me Quarter dividualin Ba 38 Do k anBcitse BNH to % 31 liacremm and % 20 anB al emoDe ankB relate Co taad cire 1, Department m Commercial moC ngier skn Table % of 13 1- Fo Ba e laicr s Supervision % kn % erugiF at skn % ankB 18 Ba 12 case nk St mme Ba 49 ativrPfostessA-A-1 re hertO naly htapmaS % the Ba 19 Co Licensed guiF Se in Only: CBSL: Note Source 4 2003 Quarter 1st Update: BI Quarterly sec 9% SM Sector anvdA B % NS 24 Financial &sn B oaL % ND 31 BSL: s B 9% 3B RD er rs he 2% guiF Ot C % DFC 25 B % NS 60 Banks stessA sB 5% edz RD SBL pecialiS B-1erug rs he 1% Fi Ot sed C % BI Licen 13 DFC B 4% % SM ND 17 - eldiY % .109 arseY v.A 15 Mn 1,500 5 2003 Rs. Volume ieldY 9.00 % Quarter 1st arseY v.A 10 Mn 1,000 Update: Rs. Volume - Quarterly sraeY eldiY 14.18 14.38 13.00 13.00 12.00 11.10 9.90 s % v.A - seiti earY3 Sector 6 Mn 500 1,000 2,000 1,500 1,000 1,000 1,500 Volume Rs. - urceS s earY2 Financial sraeY ieldY nte % 14.23 14.34 14.34 13.36 12.93 12.80 12.00 11.00 10.10 10.10 v.A - mnre s ayD 5 Mn 200 1,500 3,470 1,250 2,000 2,000 1,000 1,000 1,500 1,000 ovG 364 Volume Rs. of - - sd ieldY 9.97 9.99 dne s % 13.89 13.92 12.42 12.40 10.90 ayD Bon y sraeY Tr v.A - - 4 660 Mn 1,000 2,700 1,000 1,000 2,000 1,000 dleiY:5 821 s e ayD Treasur Rs. Volume urgiF 91 Operations sraeY ieldY % 13.79 13.73 13.31 12.20 12.20 12.20 11.10 14 13 12 11 10 9 8 v.A % 3 Market Mn 3,250 3100 1500 2000 2000 2000 2000 en Volume Rs. Op 11.9 2: sraeY ieldY % 14.08 12.74 11.94 v.A r 2 beme Mn 3,000 2,000 1,500 2,000 uneJ pteS rebmec Table De Volume Rs. estii ur sy ieldY % 14.00 13.72 12.96 11.42 11.33 11.30 10.60 9.90 8.90 9.10 9.20 Da v.A 364 Mn 35 990 ecs.tvoG 2,258 2,532 2,159 1747 1706 1378 3,143 1,600 2,035 of tyiruceSe Volume Rs. ev thfo y tsug rebmev tyir Ma Au No tua Bills sy eldiY % 13.14 13.17 12.68 11.34 11.25 11.10 10.30 9.90 8.80 9.10 9.20 urC M ankaL y Da v.A Sri deliY 182 Mn 415 483 562 563 897 259 401 887 811 706 1120 ofk 4:e Treasur Volume Rs. % guriF lir yluJ 9.90 8.70 9.10 9.10 02 rebot sy eldiY % 13.19 12.98 11.98 10.99 10.88 10.80 10.20 Banla Ap 20 Oc Da v.A Centr 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 Volume Rs. Source: h Jan y Mont Ma June July ugA t Sept Oc Nov Dec 2003 Feb March 6 2003 Quarter 1st 8 11. 99. 619. 619. 719. 49. 009. 0 00 11. 06. 58. hcra 18. A/N A/N 466. Update: M 21.1 80.9 56.9 72.9 85.9 49. 09. 01.1 00. 18 A/N A/N 06. 58. 86.6 Quarterly beF 3 11. 49. 639. 719. 829. 59. 09. 0 00 00 00 11. 06. 09. 187. Sector nJa3 18. 002 0-11.03. 0-11.07. 2 9 7 8 8 40 12. 10. 10. 10. 10. 89. 8 00 00 00 11. 06. 0 Financial 10. 18. ceD 0-11.5.3. 12.-57. 10. 507. 12 9 7 8 0 6 10. 10. 10. 11. 10. 89. 8 00 00 00 11. 06. 0 18. ovN 11.5-.3 12.5-.7 10. 807. 5 01 8 0 1 7 5 8 00 20 00 12. 10. 11. 11. 10. 10. 12. 06. 0 18. 11. 12. 10. 008. tcO 00-4. 00-8. 57. 13. 71. 88. 12 63 50 75 00 01 00 0.6 0. 12 11 10 10 11. 10. 11. 12. 18. 10 208. 00-11.4. 16-12.8. peS Rates 362.1 311.1 580.1 001.1 131.1 740.1 501.1 752.1 008.1 001. 002. 06. 0 10. 209. guA 00-14. 68-17. 43 13 88 96 46 78 50 75 00 00 00 07. 0 Interest 13. 11. 10. 10. 11. 10. 11. 12. 18. 12.- 14.- 11. 499. 3: 004. 258. lyuJ 404.1 362.1 042.1 452.1 79. 19. 50. 75. 00. 00. 00. 07. 12 12 11 13 18 01.1 61.9 Table enuJ 00-124. 00-149. 65 72 71 83 90 77 50 85 00 00 00 0.7 0. 13. 12. 12. 12. 12. 12. 11. 13. 18. 12.0-04. 14. 11 18.9 Lanka 00- Sri 10. ay M 743.1 002.1 002.1 722.1 642.1 7 5 11. 11. 583.1 008.1 002.1- 004.1- 0.7 0 11. 00.01 ofkn Ba rilpA 00.4 00. 10 Central ) setaRgndineLe (%)ROBIL(S Department, sti sti stisop stis )RD W De (A ) %(set Eco Ragnidn imrPegarevAknaBlaicrem setaRg dinneLe teaRreffOknaBrte )%()vA(etaRtekra Research ) nkaB nomic imrPtse Mye )%( ht on on ospeDsgnivaSknaBlaicrem gsnviaS poeDdexiF.ry1knaBsgnivaSla teaRtsiopeDdethgie We Le omC owL InaknaLirS yaD1 yaD7 M1 MllaC )%(etaResahcrupeRknaBlartneC )%(etaResahcr pueResreveR BC etaRknaB %(setaRsgniv poseDdeixF.rY1knaBlaicrem Sa omC omC gsnviaSlanoitaN onitaN agrevA Source: 7 2003 Quarter 1st chra M Update: oneyMlalC beF )vA(et n Ja 3002 Ratekra Quarterly and ceD Myeno es Mll Ca Sector atR voN erffO Financial ankB- etaRtekr ctO htno peS M1 Ma er ntIa guA ayD7 ly anklirS-7 Ju en Ju e yaD1 raM ya M guriF beF ilrpA naJ 3002 16 12 8 4 0 atesR ng ceD )RD % es Lendi W voN e (A Ratt mirP teaRt tcO estaRgnidneLe eres ntI eragevA teaR teaRt eposiD peS )RD ng Real ankB eposiD 8: Lendi ghtedie guA al e W erci ghtedie tesaRti mirPega gure m mirP W Fi yluJ er Av eposD knaB ) %( th n setaRgnidneLe WA(etaRtisopeD omC ealR eragevA ealR enuJ yaM Mo ng/ alcire edthgie lirpA We Lendi m etaR 16 14 12 10 8 6 4 2 0 -2 -4 -6 6: e moC mirPtsew Lo nkaB agrevA guriF 0 20 18 16 14 12 10 8 6 4 2 8 2003 Quarter 1st Update: Quarterly Sector Euro.eth Financial with enciesrr SDR 121.12 123.98 126.98 127.34 127.69 126.99 126.30 127.92 130.57 133.18 132.82 133.30 cula tionan R 85.73 90.02 94.94 94.92 94.75 93.97 94.20 95.85 eirth SD 100.31 104.75 104.16 104.87 st Euro 2002-2003 placeder or Eu 74.00 78.00 80.00 81.00 82.00 79.00 78.00 79.00 81.00 81.00 82.00 81.00 Indices JPY* reaAyc estaR Movemen ge Curren Rate Mo BSG 139.28 140.81 146.80 150.33 148.96 150.00 146.76 149.61 154.90 160.16 152.94 152.69 Euro the anhcxE:9 Prices htn *Y JP of er S Lanka Exchange 96.07 96.09 96.08 96.19 96.25 96.19 96.33 96.51 96.64 96.84 96.89 96.95 guiF Sri 4: US$ members of Consumer:5 GB 12 $ Bank Table of April ayM all US Table June July Aug Sep tcO ovN ecD Jan Feb arM End 2002 2003 2002,yar ntraleCt, 0 0 0 0 0 011 010 16 15 14 13 12 90 80 70 60 50 seepuR Rates Janu From Departmen Exchange JPY; 100 Research per Economic Rupees Note: Source: 9 2003 Quarter 1st Update: Quarterly 4 9 9 ar M 343 3.2- A/ /A A/ 7. 9. N N N Sector ebF 4233 1.1- 11 2 3. 10. 233 2.5 4 9. 5 Financial 1. 2 6. 2 1. 4. 13 10 6. .27 Jan 346 32 10 2. 3 6 2. 6 ce D 3213 5.2 11. 9. 193 .87 10. 9 3 0 vo 39. 2. 1.9 5.9 3. .18 11 N 32 31 1 5. 2 9 5. 5. ct O 173 8.0 8. 9. 5.8 309 11 A/Mh 2002-2003 8. 8 4 4 7 9 peS 50 0.- 7. 0.1 ontm 30 .87 1.1 x 31 12- 6 Indices guA 75. 7.2- 1 4 3 denI 0.1 11 7. .99 31 30 2.1 1. 8 8 1 6 nt yl 65 Prices 0.- 0.1 1.1 ecirPre 12.3 .901 3 2.1 poi Ju 32 htn um to-- 1 enuJ 2. 8 7. 4. 5 3. 3. 2. 10 11 329 31 .111 12 nsoC:01 Mo ntoiP 7 3 ya 04 Consumer:5 01 2 er M 32 6.4 1.1 09.3 .211 2.1 guiF h lirp 3 2.1- 3.8 2 5 2 2. A 306 2.1 ontm 30 .801 2.1 to- Table h- x ontM denI 16 14 12 10 8 6 4 2 0 -2 -4 htworG % ecir ceirP P'sre partmenteD um s' ons er tisticsatS C m suno ob and % % C ob molo C )001=2591( tea htno nti A/ om ) A/ M ol s R po h 001 tea M Census = s R tniop- h th th emtillA wor m-ot-h nto G M o-t-tnioP nto 9 nto m m 2-1 Cretaer G 198( emtillA wor G tot-nioP 2-1 Source: 10 2003 Quarter 1st 397 60 75 49 12 15 17 839 87 11 123 831 531 713 04 23 141 114 484 02 37 721 30 24 739 508 60 15 456 845 61 771 Update: hc ar M 9 5 9 4 0 9 2 1 4 2 8 5 8 0 2 6 7 1 1 6 8 1 6 74 124 156 173 98 124 31 18 15 38 236 11 42 45 370 18 256 97 85 99 22 77 15 17 Quarterly beF Sector 4 5 6 5 1 2 2 3 3 3 0 8 1 7 4 6 3 5 9 1 9 6 3 6 79 134 165 186 103 127 35 19 17 41 247 12 45 45 373 19 259 97 90 194 62 38 24 18 anJ Financial 2003 5 5 4 6 2 3 0 1 5 3 6 5 3 9 7 8 2 2 6 2 8 1 3 81 137 170 185 104 125 38 20 17 41 263 13 48 45 354 19 268 91 90 111 17 23 -53 16 ecD 802 75 1339 8. 1847 1013 1259 355 196 182 402 2716 145 472 469 3535 200 2682 972 821 1386 166 453 287- 160 163 ovN 820 1384 1726 1937 1007 1246 363 202 177 404 2801 145 483 479 3584 204 2860 990 811 2933 337 264 73 166 t Movements Oc 857 4641 8151 0142 0181 1841 397 217 186 426 9862 172 502 524 4103 210 5622 979 820 0845 746 469 277 174 Market peS 752 3271 5621 9001 919 0481 352 188 140 329 8311 101 445 408 4443 196 4092 840 732 0523 3571 730 627 153 Capital guA 700 2141 4541 7221 872 997 316 171 133 312 7521 97 2 6: 425 384 4443 181 3912 768 682 9931 260 257 142 Table ulyJ 117 22 68 43 12 14 17 908 16 10 223 681 461 223 24 17 061 314 783 30 37 931 71 24 117 786 05 27 52 16 539 746 441 uneJ 856 78 75 35 11 13 16 988 10 10 333 661 82 882 13 99 16 114 483 06 38 951 90 23 836 606 86 30 32 10 662 647 391 ay M rilpA 176 26 13 72 10 12 13 837 559 003 511 80 622 47 16 001 823 712 06 38 002 08 23 866 356 85 12 655 612 043 251 aniespm aniespm co co 2002 25 25 )sn ) M largest largest e nc oc alsic ute (Rs.r )sn illionsB ) *1 )sn the next Exchange ac ove M.s ns Rs.( (R the ent sm dexnI urasnI Tobac *2 & & rm onit M. ts Turn es M.s iont (R p Covers- Stock ssesAt eicrP dexnI e d haP yt esil Rs( ecirP Ca nc & vels etk ash es di dices Foo, oldingsH ilestxeT Trus alizait & gni Tra s Covers- ent uppS ar M Purc Sales ash a M In onit operrP urt Cap arke M arehSllA age alsic er ucrt fiedis & m & ac ml ion &s Colombo ilank SLB M M ortceS naiF,sk d gni hlyt ngi ngi em ns er earw est uf esciv etk anB evB elst an otors pa on Purct Ch Co Div Foot Ho nvI Lan M M oil antatlP erS oretS zaliaitpaCtekra ar Trad M M Fore Fore Ne M MILANKA- MBSL 1* *-2 Source: 11 2003 Quarter 1st oc obacT Update: & esc oodF ngi tur Quarterly dinI age, ac er Sector ort evB anuf M ec S- Financial etkra e M anc yti ur nsI hcraM qu E: & st e 12 usrT s)nM beF s.R( erug Fi nanciF,skn nte m st naJ 3002 sleaS Ba venI . nigeroF ceD 00 00 00 00 00 00 0 0 ecna 35 30 25 20 15 10 50 voN rmorf ) Pete tcO nsM.sR( )snioillB.sR( 2* rkaM:31 htn se niota peS Mo hasc urP apC guA di M LSB reugiF gnei orF lizaitpaCtekraM yluJ M enuJ esc 1* )snM.sR(re ndiI yaM : ex etk ovnruT s)nM s.R( ndI ar M yti ecirP lirpA 2002 etkraM s sea a quE nkali 0 6000 5000 4000 3000 2000 1000 1000- yhltnoM chruPteN 11 M e guriF ndexI ecirP e 00 00 00 00 00 00 00 00 0 00 0 0 0 0 0 19 18 17 16 15 14 13 12 110 10 90 80 70 60 50 arhSll A secidnI