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Economic Capsule - November 2022

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Economic Capsule - November 2022

  1. 1. Economic Capsule November 2022 Research & Development Unit 310thIssue
  2. 2. CONTENTS BANKING & FINANCE  Commercial Bank financial results – 30.09.2022  Commercial Bank’s Rs 5 billion debenture issue to open on 1st December 2022  Commercial Bank opens 269th branch in Kirillawala  Commercial Bank becomes only Bank in Sri Lanka to win National Quality Award from SLSI  Commercial Bank highest-ranked bank in ‘Business Today Top 40’ for 14th year  Commercial Bank declared ADB’s ‘Leading Partner Bank in SL’ for Trade & Supply Chain Finance ECONOMY, BUSINESS & DEVELOPMENT  Inflation eases  Central Bank believes interest rates at peak levels after inflation turned a corner  Workers’ remittances up in September  Sri Lanka confident of managing imports with existing inflows until IMF deal comes through  Sri Lanka looks to lure foreign nationals with long-term residence visa  Apparel industry forecasts 30% decline in export orders for Nov-Dec. period  Rebound in tea output expected next year with availability of fertilizer, glyphosate GLOBAL OUTLOOK  InternationalTourism moving towards pre pandemic levels  Fed officials see smaller rate hikes coming ‘soon,’ minutes show  UK on the brink of recession after economy contracts by 0.2% in the third quarter  Chinese property market woe Research & Development Unit
  3. 3. Banking & Finance
  4. 4. Commercial Bank financial results – 30.09.2022 Research & Development Unit
  5. 5. Research & Development Unit Commercial Bank’s Rs 5 billion debenture issue to open on 1st December 2022 The Commercial Bank of Ceylon’s Rs 5 billion debenture issue will open on Thursday 1st December 2022, offering investors an opportunity to profit from the growth of the bank. The Bank has announced plans to raise Rs 5 billion via 50 million Basel III-compliant debentures with an option to increase it by a another Rs 5 billion in the event of an oversubscription, to further strengthen its Tier II capital base, raise funds for the expansion of its lending portfolio, and bridge maturity mismatches in the assets and liabilities portfolio of the Bank. The Basel III-compliant, Tier II, Listed, Rated, Unsecured, Subordinated Redeemable Debentures with a *Non- viability Conversion feature at the value of Rs 100 each will be offered in three tenures – Type A with a five-year tenure, Type B with a seven-year tenure, and Type C with a 10-year tenure. The five-year debentures will carry a fixed interest rate of 28.00% p.a. (AER 29.96%) payable semi-annually, while the seven and 10-year debentures will offer a fixed interest rate of 27.00% p.a. (AER 28.82%) and 22.00% p.a. (AER23.21%) respectively, also payable semi-annually. While the minimum subscription per application for an individual qualified investor is set at Rs 5 million, the minimum subscription per application for other qualified investors will be Rs 10,000/- or 100 debentures. *Non-viability Conversion feature (NVCF) – During a trigger event NVCF securities will be automatically converted in to stock
  6. 6. Research & Development Unit Commercial Bank opens 269th branch in Kirillawala The Commercial Bank of Ceylon recently opened its 269th branch in Sri Lanka in a rapidly developing, verdant town – Kirillawala.
  7. 7. Research & Development Unit Commercial Bank becomes only Bank in Sri Lanka to win National Quality Award from SLSI The Commercial Bank of Ceylon was recently honored by the Sri Lanka Standards Institution (SLSI) with the National Quality Award – the highest award presented in the country to recognize performance excellence in quality. Commercial Bank is the only bank in the country to be bestowed this prestigious award. The Bank won this award in the Service sector under the ‘Large Scale Business’ category for excellence in quality management and quality achievement at the annual awards program organised by SLSI.
  8. 8. Research & Development Unit Commercial Bank highest-ranked bank in ‘BusinessToday Top 40’ for 14th year The Commercial Bank of Ceylon has become the highest-ranked bank and one of the five best- performing companies in Sri Lanka for the 14th consecutive year in the latest Business Today Top 40 ranking released in November 2022. Sri Lanka’s largest private sector bank, Commercial Bank has been placed third in the overall ranking this year. Commenting on Commercial Bank’s performance in 2020-21, Business Today said: “With an emphasis on controlling operational expenses and preventing any possible deterioration in its cost-to-income ratio and profitability, the Commercial Bank ended 2021 with solid growth by aligning its business with its strategic pillars of prudent growth and operational excellence.” “The Bank heeded government calls to offer moratoriums to businesses. It restructured 25 per cent on the total portfolio of advances through proactive communication and close staff monitoring,” Business Today observed, noting that “The Bank successfully maintained a low non-performing loan ratio of 1.44 per cent, reflecting the high asset quality possessed by the Bank and the success of the initiatives implemented to support customers navigating through a complex operating context.” The magazine further added that “the top corporates in the Business Today Top 40 list demonstrate hope for the country and the people, that they have the agility to respond to the unexpected and come out, often a bit bruised but wiser, to lead the development trajectory into the coming years.” Commercial Bank paid Rs. 8.3 billion in total as taxes in respect of 2021.
  9. 9. Research & Development Unit Commercial Bank declared ADB’s ‘Leading Partner Bank in SL’ forTrade & Supply Chain Finance The Commercial Bank of Ceylon was honoured as the Asian Development Bank’s (ADB’s) ‘Leading Partner Bank in Sri Lanka’ for the second consecutive year at the 2022 Trade and Supply Chain Finance Program (TSCFP) Awards that recognize the contributions of leading partner banks to trade in Asia and the Pacific. The award was presented to Commercial Bank for recording, with the ADB’s assistance, the highest number of transactions in Sri Lanka’s trade and supply chain finance domain between 1st July 2021 and 30th June 2022. Commercial Bank was among 25 banks that were recognized in 10 categories at the ADB TSCFP Awards ceremony held recently in Singapore.
  10. 10. Economy, Business & Development News Research & Development Unit
  11. 11. Research & Development Unit Inflation eases Sri Lanka’s *headline inflation (year on year) eased for the second consecutive month in 2022, latest data revealed. CCPI headline inflation (YoY) dropped to 66% in October and 61% in November from 69.8% recorded in September 2022 NCPI headline inflation for the month of October 2022 dropped to 70.6% from 73.7% in September 2022. CCPI year on year food inflation dropped to 73.7% in November from 85.6% in October 2022 Source: DCS- Sri Lanka * Headline inflation is a measure of the total inflation within an economy, including commodities such as food and energy prices (e.g., oil and gas), which tend to be much more volatile and prone to inflationary spikes.
  12. 12. Research & Development Unit Central Bank believes interest rates at peak levels after inflation turned a corner The Central Bank believes that interest rates may have reached their highest levels after inflation peaked in September and showed a slight deceleration in October amid the ultra-tight monetary policy and higher taxes brought in to reduce demand in the economy. “In respect of inflation, as we predicted last time, it has turned around. And the question a lot of people ask is when and how will our market interest rates move in coming months. One reason for the rates to climb was the higher inflation expectations, where people believe inflation to go further up. However, as the inflation expectations have now been anchored, inflation should continue on a downward path. This is where we think, even market rates have peaked,” CBSL governor said. In an economy, the interest rates closely follow the path of inflation, as central banks raise interest rates until they see a meaningful reduction in the rate of inflation. Once inflation starts falling, it provides central banks with the space to cut rates, so that economic activities, which slowed down, can be rebooted again. Global central banks, with the exception of China and Japan, have raised their rates at a faster clip since last year, before accelerating in the recent past to tamp down inflation, which reached decades-high levels. Source: CBSL
  13. 13. Workers’ remittances up in September Research & Development Unit Source: CBSL Workers’ remittances income continued its ascent in September reflecting that the worst may be over for the poor run of the key foreign currency inflow source to Sri Lanka, which is instrumental in helping the country to fund its essential imports. Sri Lanka received USD 359mn in September 2022 from expatriates living and working abroad, marginally up by 1.7% from the same month last year.
  14. 14. Sri Lanka confident of managing imports with existing inflows until IMF deal comes through Research & Development Unit The Central Bank expressed confidence that Sri Lanka could continue to manage its imports with what it earns from exports and remittances in the interim until the International Monetary Fund (IMF) deal comes through as its activation could get delayed till next January from a December target. “We could manage the situation for five months since July without any significant inflows, I don’t see any reason why we cannot do that going forward,” CBSL governor said. Although there hasn’t been any significant bridge financing during this period, he said there were some small amounts received from the Asian Development Bank and the World Bank. He emphasized how the tight monetary policy helped in curtailing the import bill, making the Central Bank’s job relatively easy in meeting the importer dollar requirement from the inflows.
  15. 15. Sri Lanka looks to lure foreign nationals with long-term residence visa Research & Development Unit Sri Lanka launched a long-term residence visa scheme for condominium property holders in Sri Lanka in an effort towards luring foreign nationals to invest in the country. The scheme was launched by Sri Lanka’s investment promotion agency, the Board of Investment (BOI), in collaboration with the Immigration and Emigration Department and Defense Ministry. Applicant Class Minimum Investment Maximum Visa period Eligible persons Individual Condominium Property (Urban area) USD 200,000 10 Y Applicant, Spouse and Dependants Condominium Property (Urban area) USD 150,000 05 Y – Renewable Condominium Property (Sub urban area) USD 75,000 05 Y – Renewable Company Condominium Property (Urban area) USD 500,000 Per unit value USD 150,000 and the total value USD 500,000 05 Y 04 Directors, their spouses and dependents Condominium Property (sub urban area) Per unit value USD 75,000 and the total value USD 500,000 05 Y Source: BOI Read More: https://investsrilanka.com/2022/11/11/boi-launches-long-term-residence-visa-scheme-for-condominium-property-holders/
  16. 16. Research & Development Unit Apparel industry forecasts 30% decline in export orders for Nov-Dec. period Sri Lanka’s apparel exporters are forecasting a drop in export orders with the main export markets, gripped by inflationary pressures, plunging into a recession. Sri Lanka Apparel Exporters Association’s (SLAEA) newly-elected Chairman Indika Liyanahewage noted that the apparel exporters are forecasting around 30 percent decline in orders during the November- December period. Sri Lanka’s main apparel exporting markets, the United States (US) and European Union (EU), are currently facing economic recessions coupled with inflationary pressures stemming from Russia’s invasion of Ukraine. Liyanahewage expects these global headwinds to impact Sri Lanka’s apparel exports in the coming six months. According to SLAEA immediate past Chairman Aroon Hirdaramani, the apparel exports are expected to reach USD 5.5bn at end of this year, up from USD 5.4bn recorded last year, however, below the industry forecast of USD 6bn.
  17. 17. Rebound in tea output expected next year with availability of fertilizer, glyphosate Research & Development Unit The Regional Plantation Companies (RPCs) expect Sri Lanka’s tea production to rebound to 300 million kilograms in 2023, after falling to a record low of estimated 260 million kilograms this year, amid the short-lived ban on chemical fertilizers and other agrochemicals. However, the tea export revenue is estimated to increase marginally to USD 1.4bn this year, due to the high prices, compared to USD 1.3bn recorded in 2021. RPCs are expecting to receive the popular weedicide glyphosate within the next one to two months, through Ceylon Petroleum Corporation.
  18. 18. Global Update Research & Development Unit
  19. 19. International tourism moving towards pre pandemic levels International tourism is on course to reach 65% of pre-pandemic levels in 2019 by the end of this year, according to the World Tourism Organization. More than 700mn people visited another country in the first nine months of 2022, up by 133% on the corresponding period in 2021. Countries in Europe were the most visited; over the summer arrivals there reached 90% of pre-pandemic levels. Destinations with notable increases of tourists include Turkey (possibly because it is one of the few European countries that now welcomes Russians) and Serbia. Research & Development Unit Source: World Tourism Organization
  20. 20. Fed officials see smaller rate hikes coming ‘soon,’ minutes show Federal Reserve officials earlier this month agreed that smaller interest rate increases should happen soon as they evaluate the impact policy is having on the economy, meeting minutes released Wednesday (23) indicated. Markets widely expect the rate-setting Federal Open Market Committee to step down to a 0.5% increase in December, following four straight 0.75% hikes. Research & Development Unit Source: US Federal Reserve
  21. 21. UK on the brink of recession after economy contracts by 0.2% in the third quarter The U.K. economy contracted by 0.2% in the third quarter of 2022, signaling what could be the start of a long recession. The contraction does not yet represent a technical recession — characterized by two straight quarters of negative growth — after the second quarter’s 0.1% contraction was revised up to a 0.2% increase. The Bank of England last week forecasted the country’s longest recession, suggesting the downturn that began in the third quarter will likely last deep into 2024 and send unemployment to 6.5% over the next two years. (Present unemployment remains at 3.6% in 2022 Jul/Sep) Research & Development Unit Source: CNBC The country faces a historic cost of living crisis, fueled by a squeeze on real incomes from surging energy and tradable goods prices. The central bank recently imposed its largest hike to interest rates since 1989 as policymakers attempt to tame double-digit inflation.
  22. 22. Chinese property market woe Research & Development Unit China announced a set of measures to boost liquidity in the troubled property market, such as extending deadlines for loans to developers. The package is seen as the most significant attempt yet by the Chinese authorities to bail out the sector, which is burdened by debt and falling sales. The prices of stocks and bonds of Chinese property companies rose sharply in response. China is facing a real estate crisis as highly leveraged real estate giants such as Evergrande (whose liabilities exceed USD 300bn) are facing difficulties after Chinese authorities imposed new tightened regulations in early 2020 on debt limits of real estate companies . Source: Nikkei, World Bank, Reuters At present a large stock of houses remain unsold as property companies are finding it increasingly hard to convince buyers. Investments to real estate market have also dropped to record levels.
  23. 23. 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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