economic capsule - september 2017

Economic CapsuleSeptember 2017

249th Issue

Research & Development Unit

C O N T E N T S

ECONOMIC & BUSINESS NEWS

Business confidence slumps in August

Govt. plans 16% increase in borrowing in 2018

Chinese envoy hints at $ 100 m annual donation to SL from 2018-2020

India’s Petronet to form JV with Japan, Sri Lanka firms for LNG plant

Hayleys to buy Singer Sri Lanka control for Rs. 11 b in biggest ever acquisition

CIC invests Rs. 2 b in agribiz to boost Sri Lanka’s economy

REITs holds potential to drive growth, job creation and FDI in Sri Lanka : JLL

Office spaces in Sri Lanka: Things to Know

INTERNATIONAL NEWS

Growing risk of 'debt trap' if interest rates stay low, - central bankers

S&P cuts China's credit rating

France’s second-largest bank, is considering expanding its presence in Asia

Huawei surpasses Apple for first time to capture second spot globally

BANKING SECTOR

COMBANK adjudged ‘Most Responsible Bank - Sri Lanka’ by Capital Finance International

Commercial Bank receives two awards from Asiamoney

Commercial Bank wins two awards from International Banker – UK

ECONOMIC & BUSINESS NEWS

Brandix named Sri Lanka’s Exporter of the Year

Lifting of EU ban opened Rs. 7 b market for seafood

https://www.combank.net/newweb/en/news/8-news-and-events/posts/781-combank-adjudged-most-responsible-bank-sri-lanka-by-capital-finance-international

Condominium Industry in Sri Lanka

October, 2014


Banking Sector

< Research & Development Unit >

COMBANK adjudged ‘Most Responsible Bank - Sri Lanka’ by Capital Finance International

The Commercial Bank of Ceylon has been adjudged the ‘Most Responsible Bank’ in Sri Lanka by the London based print journal and online resource ‘Capital Finance International’ (CFI.co) which reports on business, economics and finance.

The CFI.co judging panel commended Commercial Bank on its robust approach to responsible banking and recognized its pioneering role in this regard. Notably, the Commercial Bank of Ceylon is an early signatory to the United Nations Global Compact (UNGC), a UN initiative to encourage businesses worldwide to adopt sustainable and socially-responsible policies.


Commercial Bank receives two awards from Asiamoney

The Commercial Bank of Ceylon recently received two prestigious international awards from Asiamoney, for the ‘Best Domestic Bank’ and the ‘Best Digital Bank’ in Sri Lanka. The awards were accepted on behalf of the Bank by its Deputy General Manager Corporate Banking Mr Sanath Manatunge at a gala ceremony at the Ritz-Carlton in Beijing.

Asiamoney’s Best Domestic Bank award recognises Commercial Bank’s exceptional performance in FY 2016, while the Best Digital Bank award acknowledges the pioneering role the Bank has played in bringing technology-enabled products and services to customers.


Commercial Bank wins two awards from International Banker – UK

The Commercial Bank of Ceylon won the awards for the ‘Best Commercial Bank of the Year’ and ‘Best Innovation in Retail Banking’ presented by the prestigious UK based quarterly publication ‘International Banker’.

This is the first time the Bank won two awards from ‘International Banker’ in the same year. Notably, the Bank won the ‘Best Commercial Bank of the Year’ in 2015, and was also awarded ‘The Best Private Bank of the Year’ in 2016 by the publication.

The International Banker award for the Best Commercial Bank of the Year recognisesthe strength of Commercial Bank as reflected in the Bank’s stellar financial performance, its contribution to the country’s Small and Medium Enterprise (SME) sector, the Bank’s contribution to the economy of Sri Lanka and how it has overcome the challenges in the market place.


October, 2014


Economy & Business


Business confidence slumps in August

• The LMD-Nielsen Business Confidence Index (BCI) declined sharply to 121 in August, reflecting a slump of 13 basis points from the prior month, the latest edition of business magazine LMD reports showed.

• The upward trend over the past five months comes on the back of easing inflation and interest rates, and the granting of GSP+.

Source: Daily FT/LMD

Respondents believe that business will improve in the coming 12 months.

Moreover, about two thirds of corporate executives feel that business will stay the same or improve in the next three months.


Sri Lanka Govt. plans 16% increase in borrowing in 2018

• Sri Lanka plans to increase its overall government borrowing by 16% in 2018 to Rs. 1.8 trillion. (USD 12 billion)

• Finance Minister has also sought Cabinet approval for spending of Rs. 3.98 trillion next year, up 10.5% from its estimate for this year, government data showed.

• Finance Ministry officials, however, said the Government would stick to its medium-term budget deficit target of 3.5% of GDP by 2020.

Source: Daily FT/Ministry of Finance

Chinese envoy hints at USD 100mn annual donation to SL from 2018-2020

• Emphasizing that China’s support to Sri Lanka was based on long-cherished strong bilateral ties, Ambassador Yi Xiangliangstated they had agreed to donate USD 100mn annually to Sri Lanka over the next three years.

• China will donate USD 100mn per year to support different sectors of the economy, including innovation progress.

• Chinese donations from 2014 to date exceeds Yuan 1.5bn.

Source: Daily FT


India’s Petronet to form JV with Japan, Sri Lanka firms for LNG plant

• India’s biggest gas importer, Petronet LNG, will soon form a joint venture with Japanese and Sri Lankan companies to build a liquefied natural gas (LNG) terminal near Colombo

• The government has issued a letter of intent to the Indian government to build the plant that would supply regassified natural gas to power stations and the transport sector in Sri Lanka

• The capacity of the LNG terminal will be decided upon the gas demand in Sri Lanka and is expected to be developed in two years after completion of initial formalities.


Source: Daily FT

Hayleys buy Singer Sri Lanka

• Hayleys Plc on 13th September announced the country’s biggest ever acquisition - control of consumer durables giant Singer Sri Lanka Plc for Rs. 11 billion .

Source: Daily FT


• In a filing with the Colombo Stock Exchange (CSE), Hayleys stated it entered into an agreement to buy 61.73% stake or 231.86 million shares of Singer Sri Lanka at Rs. 47 per share in a deal worth Rs. 10.89 billion from the latter’s parent Retail Holdings (Sri Lanka) BV.

CIC invests Rs. 2 bn in agribiz to boost Sri Lanka’s economy

• CIC Group, has elevated the country’s agriculture sector via futuristic investments amounting to over Rs 2bn, which are now infusing state-of-the-art technology into the industry, thereby making an enduring impact on the livelihoods of farmers.


Cropwiz, one of the country’s largest agriculture projects to be resilient to seasonal weather

patterns, is one such futuristic investment, which indicates the potential for protected agriculture at a time in which changing weather patterns are wreaking havoc on the country’s agriculture and food production. The project, is an international joint venture and employs cutting-edge greenhouse technology which enables ‘climate smart’ year-round production, mitigating the impact of climate change.

Source: Daily FT

REITs holds potential to drive growth, job creation and FDI in Sri Lanka : JLL

• Jones Lang LaSalle (JLL) (an American professional services and investment management company specializing in real estate) has called for a re-evaluation of the regulatory and legal mechanisms around Real Estate Investment Trusts (REITs) as a vital first step towards their introduction into the Sri Lankan market.

• “In a global context, REITs have become an integral part of the investment landscape, accepted by individual and institutional investors, alike, as providing greater access to commercial real estate projects,” JLL said.


Cont…

What is a 'Real Estate Investment Trust - REIT'

A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges like a stock.

REITs provide investors with an extremely liquid stake in real estate. They receive special tax considerations and typically offer high dividend yields. (Investopedia)

REITs holds potential to drive growth, job creation and FDI in Sri Lanka : JLL (cont…)

• In Sri Lanka too, the potential benefits to the domestic economy from the introduction of REITs are significant.

• According to JLL, their introduction will likely signal stronger economic growth and job creation, but, moreover, REITs provide a platform for much needed foreign direct investment in Sri Lanka without transferring the ownership of the real estate asset to the foreign investor

• Given the current regulations around foreign ownership, JLL believe that REITs are one of the most viable mechanisms for attracting investment into Sri Lanka’s commercial real estate sector.


Office spaces in Sri Lanka

According to JLL, Colombo’s grade A office spaces in 2016 was as high as 95%, which is a clear increase from 60% recorded in 2006 – 2008.

The highest demand towards commercial spaces is generated by domestic firms and the most popular areas indicated were central business district in Colombo 1, Colombo 2 and Rajagiriya.


Currently Colombo is composed of nearly one million square feet grade A stock indicating 95% of occupancy. These high end commercial spaces are occupied by institutions like banks, high prices law firms and investment banking companies.

The JLL report suggests that an important strength of the country’s commercial segment is the rise in start-ups. By now Sri Lanka has multiple start-ups that have shown impressive growth.

Brandix named Sri Lanka’s Exporter of the Year

• The Brandix Group was declared Sri Lanka’s No. 1 exporter across all industries in 2016 at the Presidential Export Awards.

• The top award at this annual event was one of five won by the group for its contribution to the national economy and was the fifth consecutive Exporter of the Year accolade it has received.


Lifting of EU ban opened Rs. 7 bnmarket for seafood

• The removal of the European Union’s ban on fish exports and regaining the GSP+ tariff concession have opened up a Rs. 7 bn market for Sri Lanka’s fisheries industry, according to Minister of Primary Industries Daya Gamage.


Source: Daily FT

• Sri Lanka has launched an accelerated program to develop aquaculture particularly in the North and East.

• According to the Ministry of Fisheries and Aquatic Resources Development prawn and Shrimp production is continuing to increase. In 2014 Sri Lanka produced 5,040 metric tonnes of aquaculture prawns and shrimps and the production increased to 7,090 metric tonnes in 2015.


October, 2014


International

Growing risk of 'debt trap' if interest rates stay low, say central bankers


• A new warning has been issued about the growing risk of a “debt trap” if interest rates around the world stay near zero, which has encouraged borrowing by households, businesses and governments.

• The Bank for International Settlements – known as the central bankers’ bank – highlighted the vulnerability of consumer, business and government finances to interest rate increases in its quarterly report.

“Debt service ratios are only so low because interest rates have been falling so much. There is a certain circularity in all this that points to the risk of a debt trap: the protracted decline in interest rates to unusually low levels, regardless of the strength of the underlying economy, creates the conditions that complicate their subsequent return to more normal levels.” - Claudio Borio, the head of the monetary and economic department , BIS

Source: Guardian

S&P cuts China's credit rating


• S&P Global Ratings downgraded China's long-term sovereign credit rating by one notch on 21st September to A+ from AA-

• S&P's downgrade follows a similar demotion by Moody's Investors Service in May 2017.

• S&P also lowered China's short-term rating to A-1 from A-1+.

• “The downgrade reflects our assessment that a prolonged period of strong credit growth has increased China's economic and financial risks," S&P said in a statement.

Source : CNBC

France’s second-largest bank, is considering expanding its presence in Asia

Source : Bloomberg


• Credit Agricole SA, France’s second-largest bank, is considering expanding its presence in Asia to tap the region’s “huge potential” for growth, according to its Deputy Chief Executive Officer

• The lender has opened a representative office in Indonesia and is increasing its asset-management footprint through the purchase of Pioneer Investments by Amundi SA, the investment firm controlled by Credit Agricole

Huawei surpasses Apple for first time to capture second spot globally

Source: Mirror Business


• According to the latest research from Counterpoint’s Market Pulse for July 2017, Huawei has surpassed Apple in global smartphone sales consistently for June and July.

With August sales looking strong for the Chinese vendor, a hat-trick for Huawei could be on the cards.

The views expressed in Economic Capsule are not necessarily those of the Management of Commercial Bank of Ceylon PLC

The information contained in this presentation has been drawn from sources that we believe to be reliable. However, while we have taken reasonable care to maintain accuracy/completeness of the information, it should be noted that Commercial Bank of Ceylon PLC and/or its employees should not be held responsible, for providing the information or for losses or damages, financial or otherwise, suffered in consequence of using such information for whatever purpose.


“I used to think that I had many tormentors, until the day that I realized, that I was my only tormentor, and all others were fake”

economic capsule - september 2017

Economy & Finance