economic capsule - november 2012

< Research & Development Unit >

ECONOMIC CAPSULE November 2012

FINANCIAL SECTOR NEWS

Group Results for the 09 Months Ended 30.09.2012

Commercial Bank’s 9-month PBT up 25% to Rs.10.9 bn

Other Commercial Bank News…

Snippets


C O N T E N T S

ECONOMIC & BUSINESS NEWS

BUDGET 2013—Highlights

Macro Trends

FINANCIAL SECTOR NEWS


Commercial Bank (Group) Results for the 09 Months Ended 30.09.2012 (In Rs. Billions)

PBT(After VAT)

PAT Total Deposits

Total Gross Loans &

Advances

Total Assets

30.09.11

30.09.12

31.12.11

30.09.12


Commercial Bank’s 9-month PBT up 25% to Rs 10.9 bn

● The Commercial Bank of Ceylon has posted imposing 3rd quarter results, with robust growth in gross income and profits following noteworthy increases in lending and strong gains in foreign exchange income.

● CBC has reported pre-tax profit of Rs 10.9 bn for the nine months ending 30.09.2012, reflecting growth of 25.48%. PAT for the period was up 25.41% to Rs 7.6 bn.

● The Bank posted gross income of Rs 45.6 bn for the nine months, an increase of Rs 12.7 bn or 38.6% over the corresponding period in 2011.

● Within this, interest income grew by 35% to Rs 37.2 bn, consequent to substantial expansion of the Bank’s loans portfolio, while non-interest income improved by 70.57% to Rs 7.7 billion, facilitated by foreign exchange income of Rs 4.1 bn, which represented a growth of 180.59%.

● Interest expenses grew by 50.06% to Rs 21.2 bn, in response to the comparatively higher interest rates that prevailed during the period. However, Bank’s net interest income for the nine months improved by 19.33% to Rs 16 bn.

Cont >>>


Commercial Bank’s 9-month PBT up 25% to Rs 10.9 bn (Cont…)

● Within non-interest income, an increase in the volume of foreign currency operations of the Bank and the translation gains recognised consequent to the depreciation of the Sri Lanka Rupee against the US Dollar during the nine months, combined to boost foreign exchange income.

● In addition, the other income of the Bank, which is mainly comprised of commission income and investment income, recorded an increase of 17.75% and reached Rs 3.6 bn.

● Commercial Bank’s Gross Loans & Advances stood at Rs 329.1 bn as at 30.09.2012, an increase of Rs 41.1 bn or 14.28% from 31.12.2011.

● Total deposits grew by Rs 53.4 bn or 16.78% over the same period to Rs 371.9 bn. Total assets increased by 12.97% from Rs 441.1 bn at 31.12.2011 to Rs 498.3 bn at the end of the review period.

● Net provisions for bad and doubtful debts increased to Rs 1.2 bn as against a net reversal of Rs 480.7 mn for the first nine months of 2011, principally as a result of a more stringent provision policy adopted by the Bank.

Cont >>>


Commercial Bank’s 9-month PBT up 25% to Rs 10.9 bn (Cont…)

● Non-interest expenses increased by 17.89% to Rs 10 bn. The Bank opened 11 new service points and added 38 new terminals to its ATM network during the period.

● The Bank’s total capital adequacy ratio stood at 13.51% as at 30th September 2012, as against the prescribed minimum of 10%. The gross and net non-performing advances ratios increased to 3.72% and 2.18% respectively at the end of the 3rd quarter. Return on assets before tax and return on equity improved to 3.1% and 21.41% respectively.

● As a Group results recorded pre-tax profit of Rs 10.9 bn, a growth of 24.99%. Group profit after tax for the period increased by 24.83% to Rs 7.6 bn.

CBC Share Price Movement


Other Commercial Bank News…

Commercial Bank Partnership with Allianz Lanka & Continental Insurance Lanka in Bancassurance

The Commercial Bank of Ceylon has entered into an agreement with Allianz Lanka & Continental Insurance Lanka Ltd., to offer General and Life insurance products through the Bank’s network of branches island-wide.

The agreement strengthens Commercial Bank’s commitment to offer a wide choice in Bancassurance to existing and potential customers, through partnerships with the country’s leading insurance providers.

Commercial Bank’s support to education adjudged Best CSR project in Education & Training

The Commercial Bank of Ceylon took top honours for the best CSR projects in the ‘Education & Training’ category at the 2012 Best Corporate Citizen Awards presented by the Ceylon Chamber of Commerce.

The Bank’s country-wide programme of creating an IT enabled environment amongst school children, particularly those in rural areas by commissioning fully-equipped computer labs in schools and for special needs groups as well as its annual scholarships for undergraduates won the Bank the award in this category at this prestigious event.

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Sri Lanka Moves up in Forbes List of Best Countries

Prestigious Forbes magazine’s list of Best Countries for business.

In the latest list, Sri Lanka is ranked 79 (out of 141), four notches up from 83rd position previous year

External Trade Performance September – 2012

Branch Openings

>> CBC —Kodikamam (225th) & Mulliyawalai (226th)


ECONOMIC & BUSINESS NEWS


BUDGET 2013—Highlights >>>

Financial Services – Banking Sector● Investment Fund Account The list of qualifying sectors for lending through the Investment Fund Account to be expanded to include: Investment in sustainable energy sources. Investment in women entrepreneurship venture capital projects where the investment should not be in excess

of Rs. 10 Mn. Funds lying in the Investment Fund Account, not invested as per the guidelines set out by the Central Bank of

Sri Lanka/ Department of Inland Revenue, by 30.06.2013 will be transferred to the Government Consolidated Fund.

● Introduction of New Levy It is proposed to introduce a special levy of 1% on profits of banking institutions and the levy is to be

transferred to the National Insurance Trust Fund in order to establish an insurance scheme for farmers. ● Other Proposals Banks have been requested to defer the recovery of agricultural loans till after the Maha harvest. Interest charged on such loans to be waived.


BUDGET 2013—Highlights (Cont…)

Development Finance● DFCC Bank and the NDB Bank DFCC Bank and the NDB Bank to raise long term foreign development finance, up to USD 250 mn each, over a 10

year tenure, to provide long term funding for SMEs, plantations, the construction industry and other manufacturing industries. Interest income from such lending is exempt from income taxes.

As an incentive to these two development finance institutions to promote such capital formation, the Government will underwrite the exchange risks of such borrowings.

The Government will also facilitate such borrowings by floating domestic bonds, enabling these two institutions to invest their surplus funds until loan proceeds are fully utilized. This will enable domestic entrepreneurs to borrow long term funds at low interest rates to meet their funding requirements.

● Towards a Value Creating EconomyBusiness with annual turnover less than Rs. 12mn exempted from NBT and VAT

● Apparel and Other Manufacturing Industries Two year depreciation allowance is proposed for apparel and other manufacturing industries, to modernize with

advanced technology, machinery and accessories. The Port and Airport Levy on their daily used consumable items will be reduced from 5% to 2.5 % to improve the

competitiveness of the apparel industry.


● The Construction Industry

According to the president of Chamber of Construction Industry, S. Wikramasinghe, the major concession the local construction industry has achieved in budget 2013 is the agreement to include the participation of local consultants and contractors in foreign funded projects.

However, he regretted that two of their most important proposals: establishment of an Infrastructure Development Fund and providing of seed capital for such fund and to invite PPP proposal from investors/ developers to formulate urban regeneration project templates on mega projects were not considered by the Ministry of Finance.

● Education and Vocational Training Allocations for the educational sector has been increased by 15% and university lectures’

professional integrity will be improved and preserved. Rs 306bn is to be allocated to the education sector which will amount to 4.1% of the GDP Vocational Training – Rs 1,600mn will be allocated to set up 20 Technical Colleges attached to

Vocational Technical University Colleges that would accommodate over 50,000 A/L students who will be given new diplomas that would cater to the demands of international markets.



● Irrigation Rs. 102 bn to be allocated to develop the irrigation system.● Capital Market Development

Direct investments in foreign currencies in unit trusts, bypassing the securities investment account allowed. Three and half year tax holiday for new companies listed in the CSE.

Capital Inflows: Corporates permitted to borrow up to USD 10mn annually● Research & Development and Technology Rs. 9 bn to be provided for direct expenditure on research and related work done by researchers in

Government research institutions Rs. 300 mn to be allocated in 2013 for the launch of the research initiatives in the areas of indigenous

medicine and food varieties that have been widely used in the past in Sri Lanka to prevent non communicable diseases

The present allocation to the National Research Council will be increased by a further Rs. 250 mn. to encourage research initiatives undertaken by our university academic staff on many disciplines including research in food technology, dairy farming and animal husbandry, aquaculture, nanotechnology, seeds and planting materials, Dengi control, information technology, clinical research, textile technology, renewable energy and organic products etc.



● Research & Development and Technology (Cont…)

Triple deduction from taxable income allowed for expenditure on research and development carried out through Government institutions, will be extended to such expenditure carried out through private institutions as well.

Lump sum depreciation for capital expenditure on required equipment to engage in research and innovation and development of laboratory facilities to encourage the private sector to engage in research and innovation.

● Health Rs 125 bn is to be allocated to improve health services in the country.

● Development of Corporate Debt Market and Promotion of Municipal Bonds Proposal to amend relevant legislations to enable municipal councils which have budget surpluses to issue

Medium Term Municipal Bonds equivalent to 5 times of the surplus subject to a maximum of Rs. 500 mn, with Treasury approval.

Tax exemption on interest income from investment made on or after 1.1.2013 in:Corporate Debt Securities, quoted in any Stock Exchange licensed by the Securities and Exchange Commission of Sri Lanka [including the

deduction of withholding tax (WHT) under section 135]; or Municipal Bonds issued with the approval of the General Treasury (including the deduction of WHT under section 134).



BUDGET 2013—Highlights Other >>>

Vehicles Imported under permits will be subject to an increased tax of 10% to 20%.

Rs 1000 mn is to be allocated for drought affected farmers. Rs. 750 mn will be allocated to the Maga Neguma program to develop inner access roads in urban areas.

Nation Building Tax and Value Added Tax are imposed only at the points of import and in the manufacturing stages and they are not applied on the booming supermarket chains and luxury shopping complexes.

Therefore, it has been proposed to extend the coverage of these two taxes to supermarkets and large scale trading operations generating a quarterly turnover in excess of Rs. 500 million. As the threshold is high, small boutiques and shops will not be liable for these taxes.

A Crop Insurance Scheme for all farmers who are using the fertilizer subsidy, has been proposed to be implemented from 2013.

Necessary legal amendments will be introduced to make it mandatory for banking, finance and insurance institutions to pay a levy of 1% from their annual profits to the National Insurance Trust Fund.

The farmers who are benefiting from the fertilizer subsidy will be made policy holders of this compulsory insurance scheme by requiring them to pay Rs. 150 per every 50kg of chemical fertilizer issued under the fertilizer subsidy scheme.


Macro Trends

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.

Research & Development Unit

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- Mother Teresa

economic capsule - november 2012

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