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February 2010 
E
c o n o m i c
C
Research & Development Unit
a p s u l e
Research & Development Unit
Financial Sector News
C O N T E N T S
 Commercial Bank Moves to No:2 from No:4 in Business Today Top 10
 Highlights of the Banking Sector - 2009
Economy and Business News
 Views of HSBC Asia Economist on Sri Lanka
 Sri Lanka to Raise USD 500mn in Dollar Bond
 Sri Lanka Plans USD 100mn Northern Re-finance Fund
 Q+A: Sri Lanka to Face Loss of EU's GSP+  Reuters
 Tourist Arrivals up 31.9% in January
 External Sector Performance – Jan to Dec 09
 Inflation (CCPI) - February 2010
Economic and Financial Sector Snippets
Analysis & Forecast
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Financial Sector News
Commercial Bank Moves to No:2 from No:4 in Business Today Top 10
 CBC has moved up
by two slots to secure
the Number 02
position in 2008-2009
from 2007-2008
position of Number
04, of the Business
Today Top10.
 The elevation in
position was mainly a
result of an overall
strong performance
by CBC in its
operations in both Sri
Lanka as well as in
Bangladesh,
according to
‘Business Today’.
Rank
08/09
Rank
07/08
Points
01
02
8.000
Sri Lanka Telecom
02
04
6.250
Commercial Bank
03
01
5.950
John Keells Holdings
04
-
5.025
Ceylon Tobacco Company
05
-
4.650
Associated Electrical Corporation
06
03
3.900
Distilleries Company of Sri Lanka
07
06
3.750
Hatton National Bank
08
09
2.750
Aitken Spence & Company
09
10
1.900
Cargills (Ceylon)
10
08
1.650
Carson Cumberbatch
10
-
1.650
Sampath Bank
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Name of the Corporate
Source: 'Business Today' – February 2010
Research & Development Unit
Highlights of the Banking Sector - 2009
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Total Assets
Loans & Advances
Rs. Tn
Financial Sector News
Rs. Tn
Total assets of the banking
sector for 2009 increased by
11.5% to reach Rs. 3 tn
compared to Rs. 2.7 tn in 2008.
11.5%
Assets Composition
%
Within the
composition of
assets, the
share of
advances
reduced to 52%
in 2009 from
61% in 2008
while share of
investments
increased from
25% in 2008 to
31% in 2009.
-3.9%
Compared to 2008, the
volume of loans and
advances contracted by
3.9% to Rs. 1.57tn in 2009.
Deposits
Rs. Tn
18.5%
Deposits crossed Rs.
2tn, in 2009 and
recorded a growth of
18.5% over 2008, and
this was the highest
growth in the last five
years.
Research & Development Unit
Financial Sector News
Highlights of the Banking Sector - 2009 (cont…)
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
With the contraction in advances, the credit to deposit ratio declined significantly to 70.6% in
2009 from 87% in 2008.

Non Performing Loans increased by 21% (Rs. 22bn) during 2009. Gross NPL ratio and net NPL
ratio increased to 8.0% and 5.0%, from 6.3% and 3.4% in 2008, respectively.

Banking sector profit before tax indicated a growth of 17.7% against 14.3% in 2008, this was
mainly due to the reduction in provisions and low growth in operational costs.

Bank interest rates have declined over time. However further reductions are expected.

By end 2009, all banks were required to meet the Agriculture Sector Lending target of 10%.
Twenty five (25) banks had complied with the target. There were 10 banks that were below the
target.

Out of 513 banking outlets (branches + extension offices) for which approval had been granted
by the CBSL, 134 banking outlets were actually opened in 2009.
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Economy and Business News
Views of HSBC Asia Economist on Sri Lanka
The Senior Asian Economist, Global Research of HSBC, Robert PriorWandesford, in an interview with the Daily FT (15.02.10) has stated that Sri
Lanka could achieve a 7% GDP growth in 2010, ranking third in the Asian region,
after China and India. Following are his views on the Sri Lankan & the world
economy.
Post war opportunities for Sri Lanka
 With the end of war, 30% of the land mass and 2/3 of the coastal belt automatically
opens up for agriculture and fisheries and the entire nation will also greatly benefit from
the renewed prospects for tourism.
 Higher Foreign Direct Investments (FDI) will flow in to the country and the 7% growth
rate predicted for 2010 would soon be the average annual growth rate for Sri Lanka.
 Tourism, agriculture and construction are the key areas that would contribute towards
growth in Sri Lanka.
Research & Development Unit
Economy and Business News
Views of HSBC Asia Economist on Sri Lanka (cont…)
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 Stimulus measures put in place by the Government, such as the reduction in interest rates, special
lending rates for the agriculture sector and to the Internally Displaced Persons (IDPs) and the 12.5%
of the GDP planned to be spent on “mega projects” will pave the way for economic acceleration in
the future.
 The Stand-By Loan from the IMF will add financial security and attract more investors to the country.
Problem areas that needs to be solved,
 SL was placed at the 105th place out of the total 183 countries studied in the, international surveys
of Competitiveness and Ease of Doing Business Index, introduced by the World Bank.
 The World Competitiveness Index introduced at the recent World Economic Forum lists Sri Lanka
at 79 out of 133 countries. These indexes clearly indicate that there is much room for improvement.
 High level of regulatory, tax and bureaucracy constraints stands against the development in Sri
Lanka.
 The authorities must also concentrate on keeping a lid on the budget deficit.
Research & Development Unit
Views of HSBC Asia Economist on Sri Lanka (cont…)
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Economy and Business News
Sri Lanka - What to Expect
 According to the views of Wandesforde, inflation should come down before the end of 2010 & exchange
rates are to be much firmer and more stable than in previous years.
 The CBSL forecasts look optimistic, and add security to the system. The CCPI inflation has been projected
to average 7.5% in 2010, while the CBSL forecasts inflation rates of 5% to 6%.
 Despite these challenges, SL has the opportunity to ride on the wave of Asian growth as many economists
believe that the growth of the Asian region would far outclass the growth of the developed world.
World Economy
 The developed world is only now emerging out of the recession, and will grow at a higher percentage in
2010 than in 2009.
 Top economists have forecast that the GDP growth for 2010 in the developed world will be only 1.9%, while
the emerging economies would have a 6% growth in the same period. However, HSBC forecasts the Asian
region to grow at over 7% in 2010.
 HSBC also forecasts that the USA would grow at 2.7% in 2010, while Europe would record a 1.7% GDP
growth. The main markets in the Asian region predicted to record the highest growth in GDP are the Indian
and Chinese markets, which are expected to show GDP growths of 8.5% and 9.5% respectively.
Research & Development Unit
Economy and Business News
Sri Lanka to Raise USD 500mn in Dollar Bond
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 Sri Lanka is planning on a 10-year USD 500mn sovereign bond after May
2010 when funding needs become clear after the budget is passed in April,
2010.
 Sri Lanka had sold two USD 500mn sovereign bonds in 2007 and 2009 with a
5-year maturity on each occasion.
 According to the Central Bank governor, the funds will go towards capital
expenditure and reconstruction.
Research & Development Unit
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Economy and Business News
Sri Lanka Plans USD 100mn Northern Re-finance Fund
 Central Bank of Sri Lanka is planning a USD 100mn re-finance fund for the
northern Jaffna peninsular which is seeing an economic revival after a
highway to the south was opened with the end of a decades long conflict.
 The Northern Regional Development Fund is to channel loans to businesses
in the region through existing banks.
 According to the Central Bank governor, CBSL’s northern revival loan refinance scheme has already attracted applications for 9,000 loans valued at
1.8 bn rupees and a billion rupees has already been given through banks in
the area.
 The new fund is the result of a request made for a special development bank
for the region at a forum attended by Central Bank Governor Mr. Nivard
Cabraal last month in Jaffna.
Research & Development Unit
Q+A: Sri Lanka to Face Loss of EU's GSP+  Reuters
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Economy and Business News
Q: WHAT IS THE EU GENERALISED SYSTEM OF PREFERENCES PLUS (GSP+)?
Q
A:
A It is a special incentive scheme for sustainable development and good governance, offering
tariff cuts to support vulnerable developing countries in ratification and implementation of
international conventions in these areas.
Q
WHY IS THERE A POSSIBILITY OF SRI LANKA LOSING GSP+?
A:
A
An EU probe has found Sri Lanka in breach of international human rights laws. Western
diplomats say it will be very difficult for Sri Lanka to come back from losing it at this stage.
Q
WHY DOES IT MATTER FOR SRI LANKA?
A:
A Sri Lanka is one of 16 countries with GSP+ status. Garment exports, the country's second
foreign exchange earner after remittances, have benefited substantially with a 6-7 %
concession, and the EU has been the main buyer. The value of the benefits has been
estimated at 100mn Euros (USD 136mn). Losing GSP+ means EU buyers will have to pay
more for Sri Lankan exports, thus the exporters lose price competitiveness and market
share.
Research & Development Unit
Economy and Business News
Q+A: Sri Lanka to Face Loss of EU's GSP+  Reuters (cont…)
Q
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IS THERE ANY WAY SRI LANKA COULD GET GSP+ RENEWED?
A If Sri Lanka could address the concerns of the EU in the next six months, there is a
possibility.
Sri Lanka has said it is ready to engage with the EU to address the concerns raised by
the bloc, asking that "unattainable targets" be avoided in any talks
Q
WHAT DOES LOSING GSP+ MEAN FOR THE SRI LANKAN ECONOMY?
A Closure of small and medium-scale garment firms and job losses, mainly among the
rural poor women.
Economists say there may be pressure on the USD 40 bn economy's fiscal and trade
balances, if there is a significant decline in export revenue after losing the GSP+.
According to the central bank, exporters will still be competitive after the loss of the
scheme due to depreciation of the currency against the euro and British pound. But
garment exporters say their buyers have already signalled a move away from them to
lower priced garments.
Research & Development Unit
Economy and Business News
Tourist Arrivals up 31.9% in January
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The number of tourists visiting Sri Lanka rose sharply in January
2010 with a recovery in traditional Western European markets and
more visitors from newer south Asian markets after the end of the
war.
Latest data from the government tourism authority showed arrivals
rose 31.9 % to 50,757 in January 2010, albeit from a low base the
year before.
Research & Development Unit
External Sector Performance – Jan to Dec 09
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Economy and Business News
Trade Balance (USD Bn)
Jan to Nov, 2008
Jan to Nov, 2009
-29.5
-12.7
52.5

The deficit in the trade account was off-set by
the higher inflows of workers’ remittances.
During 2009 workers’ remittances increased
by 14.1 % to USD 3,330.3mn. As a result,
workers’ remittances were USD 532mn (about
19 %) in excess of the trade deficit.

The gross official reserves were at USD
5,097mn by end December 2009, which were
sufficient to finance 6.2 months of imports.
Research & Development Unit
Economy and Business News
Inflation (CCPI) – February 2010
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Feb 10’
Jan 10’
Point to Point Change %
6.9
6.5
Annual Average Change %
3.1
3.1
Research & Development Unit
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Economic & Financial Sector Snippets
Sri Lanka Among
Top Growers in 2010:
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Eagle Insurance
Transforms into
 Sri Lanka's Eagle
Insurance, a unit
of Aviva,
changed its
name to Aviva
NDB Insurance.
 Since February
2006, Aviva and
NDB have been
the main
shareholders of
Eagle with 51%
and 41.15%
holdings
respectively.
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Fiscal Position
Analysis & Forecast
 Though Sri Lanka has the potential to achieve a higher GDP growth, risks are driven from the fiscal
front.
 According to CBSL the overall budget deficit is expected to reduce over the medium term and the
improvement in the financial position of both the government and public corporations is expected to
release resources to the private sector.
 The growth in credit to the private sector is expected to return to positive territory by the second
quarter of 2010. It is expected to increase, reaching a year-on-year growth of around 13% by end
December 2010.
 However, achieving all these targets will depend on how far the government will be able to manage
fiscal policy.
 Public investments targeting infrastructure development in ports, roads, bridges, water supply and
irrigation, power generation, rural infrastructure, education and health services coupled with the
sudden demand encountered to facilitate de-mining operations in the newly liberated areas in the north
and post-conflict rehabilitation and resettlement expenditure have resulted in raising public investment
to 6.5% of GDP in 2009. It is pertinent to note that public investment has been above 6%of GDP
throughout the post 2005 period, which shows a significant policy shift from the pre 2005 period.
Research & Development Unit
Fiscal Position (cont…)
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2007
Analysis & Forecast
Revenue and Grants/GDP (%)
2008
2009
2009
(Target)
(Prov.)
16.6
15.6
15.2
15.1
Revenue /GDP%
15.8
14.9
14.8
14.6
Tax/GDP (%)
14.2
13.3
13.3
12.9
Non Tax/GDP (%)
1.6
1.6
1.4
1.7
Grants/GDP (%)
0.9
0.7
0.5
0.5
Expenditure/GDP (%)
23.5
22.6
22.2
24.8
Current Expenditure/GDP (%)
17.4
16.9
16.9
18.4
Capital Expenditure/GDP (%)
6.1
5.7
5.3
6.5
Public Investment/GDP (%)
6.4
6.0
5.4
6.5
Revenue Deficit / GDP (%)
(1.6)
(2.0)
(2.1)
(3.8)
Budget deficit /GDP (%)
(6.9)
(7.0)
(7.0)
(9.7)
Total Foreign Financing /GDP (%)
1.8
0.3
(0.0)
1.7
Domestic Financing/ GDP (%)
5.1
6.7
7.0
8.0
Non bank Financing/GDP (%)
4.6
6.6
6.9
7.9
Research & Development Unit
Jack Welch is the author of Winning, a #1
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