Commercial Bank Economic Capsule - June 2024

EconomicCapsule
June 2024
Research & Development Unit
329th Issue
Public

CONTENTS
BANKING & FINANCE NEWS
 ComBank biggest lender to Sri Lanka’s SMEs for 4th consecutive year
 ComBank’s Rs 10 Billion Debenture Issue
 ComBank wins two Golds at IDB’s Green Industry Awards 2024
 Combank Q+ Payment App goes trilingual to further facilitate payments for
the masses
 ComBank donates milestone 300th IT Lab
ECONOMIC, BUSINESS & DEVELOPMENT NEWS
 Highlights of the IMFArticle IV and second review
 GDP growth –2024, Q1
 Sri Lanka External Debt Restructuring : Latest
 News Snippets
 Monthly Industry Update
GLOBAL UPDATE
 World Bank – Global Economic Prospects
 Ghana clinches preliminary USD 13bn debt deal with bondholders
 Global Elections: India and EU
 Global News Snippets

Banking & Finance
News

ComBank biggest lender to Sri Lanka’s SMEs for 4th
consecutive year
The Commercial Bank of Ceylon was the biggest lender to Sri Lanka’s
small and medium enterprises (SME) sector by a huge margin in 2023,
accounting for nearly a third of the value of the loans disbursed by a
total of 17 state and private sector lending institutions, the Ministry of
Finance has confirmed.
According to the Ministry’s Final Budget Position Report (Annual Report) for 2023,
Commercial Bank lent Rs 231.655bn out of the total loans of Rs 704.142bn to SMEs,
accounting for 33% of the total in value terms.

ComBank’s Rs 10 Billion Debenture Issue
The Colombo Stock Exchange (CSE) has approved in principle the listing of Commercial Bank
of Ceylon PLC’s Rs 10 Billion Debenture Issue opening on Tuesday 2nd July 2024.
Instrument 100mn Basel III Compliant - Tier II Listed Rated Unsecured Subordinated Redeemable Debentures
with a Non-Viability Conversion feature
Par/Issue value of a
debenture
Rs 100
Total value of the
issue
Rs 10bn with an option to raise up to a further Rs 5bn at the discretion of the Bank in the event of an
oversubscription of the initial issue with a further option to raise up to a further Rs 5bn at the
discretion of the Bank in the event of an oversubscription of the initial issue and the second tranche.
Purpose To further improve the Capital Adequacy Ratio of the Bank by increasing its Tier 2 capital base.
Tenures, Rates and
other details
Type of debenture Tenure Interest rate % Annual Effective
Rate %
Interest payment
frequency
A 5 years 12.60% 13.00% Semi annual
B 5 years 13.00% 13.00% Annual
C 7 years 12.85% 13.26% Semi annual
D 7 years 13.25% 13.25% Annual
E 10 years 13.00% 13.42% Semi annual
F 10 years 13.50% 13.50% Annual
The minimum subscription per application for an individual Qualified Investor is set at Rs 5mn, and the minimum subscription per application for
other Qualified Investors at Rs 10,000 or 100 Debentures.

ComBank wins two Golds at IDB’s Green Industry Awards
2024
The Commercial Bank of Ceylon won triple
honours including two Golds at the Green
Industry Awards 2024 presented by the
Industrial Development Board (IDB) to
recognize success stories in sustainability.
Gold awards
‘Green digital and information technologies’ - For its success in driving the adoption of digital banking by a wide
spectrum of customers, thereby enhancing financial inclusion and reducing environmental impact.
‘Low carbon and/or climate-resilient production’ - For the positive impacts of the Bank’s journey to carbon-
neutral status.
Bronze award
‘Inclusive business development’ - In recognition of its pioneering role in Green Financing to support initiatives
aimed at addressing climate change, promoting environmental sustainability, and fostering eco-friendly activities.

Combank Q+ Payment App goes trilingual to further
facilitate payments for the masses
‘Combank Q+ Payment App’ – the first
LankaQR certified mobile payment app in
Sri Lanka – has gone trilingual with the
launch of its groundbreaking Sinhala and
Tamil versions at twin events held in
Nittambuwa and Jaffna respectively.
The Q+ Payment App is now available in the preferred language
of the user, making the App and its payment options available
to a much wider customer base covering the entire island.

ComBank donates milestone 300th IT Lab
Commercial Bank of Ceylon’s nationally-
significant campaign to boost digital
literacy in Sri Lanka reached an impactful
milestone with the completion of the
300th IT Lab donation by the Bank at
Nalanda Boys Central College,
Minuwangoda

Economic, Business
& Development
News

Highlights of the IMF Article IV and second review
The IMF Executive Board completed the 2024
Article IV Consultation and Second Review
under the 48-month Extended Fund Facility
with Sri Lanka, providing the country with
immediate access to SDR 254mn (about USD
336mn) to support its economic policies and
reforms.
Sources: , https://www.imf.org/en/Publications/CR/Issues/2024/06/13/Sri-Lanka-2024-Article-IV-Consultation-
and-Second-Review-Under-the-Extended-Fund-Facility-550261

On EFF program measures
• All quantitative targets were met, except for the marginal shortfall of indicative target on social
spending.
• Most structural benchmarks were either met or implemented with delay.
• Reforms and policy adjustment are bearing fruit.
• Despite positive developments in inflation and revenue collection, the economy is still vulnerable
and the path to debt sustainability remains knife-edged.
(cont.)

Proposed revenue measures
1.Imputed rental income tax
• The property tax, originally scheduled for
implementation in 2025, encountered institutional
obstacles. Following the recent IMF technical
assistance report, an imputed rental income tax has
been identified as a suitable alternative.
This tax has been proposed to be introduced by April 1, 2025, with an exemption threshold and
a graduated tax rate schedule to ensure progressivity.
According to projections, the total yield from this tax (0.4% of GDP) would only fully materialize
by 2026 (partial yield of 0.15% of GDP in 2025)
(cont.)
Source: 2024 IMF Article IV

Structural benchmarks regarding imputed rental income tax
• Establishing a database on property valuation, that includes information such as assessed values,
latest assessment date, and property type in all municipal councils by August 2024.
• Fully operationalizing a nationwide digital Sales Price and Rents Register (SPRR) by end-March
2025, accessible by the Inland Revenue Department (IRD), the valuation department, the land
registry, and the public.
• Improving data-sharing among relevant government entities through amending the Notaries Act
by April 2025 to ensure information on each notarized real property contract is automatically fed
into the digital SPRR
(cont.)
Proposed revenue measures (cont.)

2.The implementation of a VAT compliance improvement program
• This measure will identify, assess, and prioritize the compliance risks for each taxpayer segment
and determine a detailed risk management plan, covering taxpayers’ education, registration, filing,
payment, and risk-based verifications.
3.Complementary revenue administration measures
• To support IRD digitization, cabinet will approve by August 2024 a prioritized, time-bound, and
costed Information Technology Strategic Plan to deliver the Revenue Administration Management
Information System (RAMIS) (version 3.0) with functionality enhancements and design
improvements.
• IRD to complete risk profiling of the largest 100 High Wealth Individuals (HWI) taxpayers by
September 2024.
(cont.)
Proposed revenue measures (cont.)

Labour market
• Sri Lanka’s labour force participation (LFP) rate has fallen significantly while female LFP remained
persistently low.
(cont.)

GDP growth –2024, Q1
Sri Lanka’s economy grew at a faster pace of 5.3% in the first three months of 2024, picking up from
4.5% in the final three months of last year.
“The high inflation that had prevailed in the first quarter of the year 2023, gradually reduced to a lower
level by the first quarter of 2024 and this low inflation incentivized the economy by providing inputs at
much lower price.
This effect was more notable in the construction industry, which had been severely affected in the first
quarter of 2023 by high input prices. Construction grew by 14.2% during the first quarter of 2024.
In parallel to the decrease in inflation, the interest rate also showed decreasing behavior towards the
end of the first quarter of 2024.
Moreover, with the help of the increased liquidity in the foreign currency market, lifting import
restrictions further, had a more favourable impact on almost all the manufacturing activities in the first
quarter 2024.
In addition, as a result of the increase in tourist arrivals, many related activities to the tourism industry
have shown expansions during this quarter.”

GDP growth –2024, Q1 (cont.)
Source: CBSL

Sri Lanka External Debt Restructuring : Latest
Sri Lanka has reached ‘final restructuring agreement’ on USD 5.8bn of bilateral debt coming under an
Official Creditor Committee in Paris, the President’s Media Office said.
Sri Lankan officials and global investors are expected to hold a second
round of direct talks during the last week of June to agree on the
restructuring of USD 12bn in defaulted bonds.
A group of bondholders, known as the steering committee, will continue to
negotiate on the government’s new proposal in this round of the talks.
Outstanding amount includes the unpaid principals of affected debt instruments specified in the interim policy of debt
standstill (https://www.treasury.gov.lk/api/file/54a19fda-b219-4dd4-91a7-b3e74b9cd683)
Updated, to convert the outstanding amounts in different currencies into US$, the exchange rates as at 29th December
2023 have been used
** Provisional, to convert the outstanding amounts in different currencies into US$, the exchange rates as at 28th March
2024 have been used
1. Included the CPC Loan which is expected to pay in LKR
2. Include SLDBS + Non project FCBU Loans
*** Outstanding amounts of ISBs has not been classified on the current resident/nonresident basis of its holdings.
Sources: Ministry of Finance, Bloomberg

News Snippets
CSE aiming to launch green financing
instruments
The Colombo Stock Exchange (CSE) has
plans to launch green financial instruments
in collaboration with related agencies, as
the country’s climate policy begins to take
shape, top officials said.
“We hope to work with agencies such as
the Ceylon Chamber of Commerce and the
Investment Promotion Ministry to launch
climate-related instruments. We have
already launched Green Bonds. We are
doing a lot of work to encourage the
issuing of these Green Bonds,” Rajeeva
Bandaranaike, CSE CEO told
Sri Lanka, Bangladesh discuss FTA, agriculture modernization,
ferry and private investment
Bangladesh PM and Sri Lanka President have discussed a free
trade agreement, a ferry service, an agricultural modernization
program, and encouraging private investment opportunities.
Sri Lanka and Saudi Arabia to ink MoU to boost direct
investments
Sri Lanka and the Kingdom of Saudi Arabia will enter into a
Memorandum of Understanding (MoU) aimed at attracting
direct investment and enhancing the investment environment
in both countries.
The agreement seeks to promote policy and legal reforms,
provide advanced and integrated infrastructure facilities and
streamline processes to foster a more investor-friendly climate.

Monthly Industry Update

Monthly Industry Update -Tourism
Tourism in numbers
Top ten markets (Jan-May 2024)
Per head tourist earnings = Tourist earnings/Tourist arrivals
Source: LMD – CBSL, SLTDA
Source: LMD – CBSL, SLTDA

Monthly Industry Update –Tourism (cont.)
Triggers, barriers and what can be done?
Higher airlifting costs – A hurdle to promote MICE tourism in Sri Lanka.
A major hurdle the country faces in growing its MICE tourism segment is the high
cost of air travel compared to other competitive destinations in the region.
By improving air connectivity and reducing airlifting costs, as well as active
engagement with budget airlines and collaborating with low-cost carriers, Sri
Lanka will be able to promote itself as a cost-effective MICE destination in the
region.
Transforming a low-cost, low-value client base
The majority of tourists are charter-based, low-budget visitors. These tourists
purchase low-priced package holidays from a few large tour operators.
The focus on cost attracts a high volume of visitors but leads to severe price
competition and frequent undercutting among operators.
This results in a low-cost, low-value trap for the Sri Lankan tourism industry.
If SL is to challenge its competitors: Maldives, Singapore and Malaysia,
transforming the low cost low value base towards high end tourists is vital.
Wave of migration is jeopardizing the
sustained growth and success of Sri Lanka’s
hospitality sector.
Nurturing and retaining experienced
professionals is critical to maintaining the
competitive edge. Sri Lanka’s skilled
hospitality talent is much sought after across
the globe. So investing in employee
wellbeing, providing continuous training and
offering competitive employment
opportunities will enable us to deliver service
excellence that’s on a par with the region.
Offering tax incentives and investor friendly
policies can catalyze private sector
participation in the tourism industry, by
developing new resorts and other projects
such as planned leisure attractions, which will
cater to diverse traveler preferences.
Source: LMD – Tourism Industry
Views expressed by Mr Mikael Svensson -CEO of Cinnamon Hotels & Resorts

Monthly Industry Update –Tourism (cont.)
• Minimum room rate rule, which was imposed in September 2023 was removed w.e.f 31 May 2024 to
allow more competition in the industry.
• In order to promote the industry, the Tourism authorities are planning to introduce a National visa policy.
Under this policy, selected countries will be granted visa free status. The policy proposals along with the
proposal to grant visa free status for 67 countries are expected to be presented to the cabinet for
approval in the coming weeks.
• Thailand announced at the end of May that the number of countries eligible for visa-free entry to the country
would be increased from 57 to 93. Under the new scheme, visitors can stay in Thailand for up to 60 days,
compared to the earlier limit of 30 days.
• According to the Ministry of Foreign Affairs of Japan, 71 countries currently enjoy visa exemption arrangements
with the country.
• In a similar manner, Malaysia has also permitted 133 countries to visit it without a visa, while in the Maldives,
tourists of all nationalities can receive a 30-day visa free of charge on arrival in the country.
Industry developments
Source: Ministry of Tourism

Global
Update

World Bank – Global Economic Prospects
According to the World Bank– Global Economic Prospects June 2024 issue, global growth is projected
to remain subdued at 2.6% in 2024—half a percentage point below the 2010-19 average.
This reflects the:
• Lagged effects of monetary tightening
• Resumed fiscal consolidation
• Moderate consumption growth in the context of receding savings buffers and diminishing labour
market tightness.
1. Aggregate growth rates calculated using GDP weights at average 2010-19 prices and market exchange rates.
Read more: https://openknowledge.worldbank.org/server/api/core/bitstreams/6feb9566-e973-4706-a4e1-b3b82a1a758d/content

Ghana clinches preliminary USD 13bn debt deal with
bondholders
Ghana has reached an agreement in principle with two bondholder groups to restructure around
USD 13bn of its debt, it said on 24 June 2024, making it the second African country this month to
reach the final stages of a debt overhaul.
The agreement will see Ghana's bondholders
forego about USD 4.7bn of their loans and
provide cash flow relief of about USD 4.4bn up
until 2026 when the country's current
International Monetary Fund program ends.
The deal which will amount to a principle
'haircut' in bond market is said to be around
37%
The IMF described the agreement as "a
significant positive step" for Ghana. The
committee representing its international
bondholders said it would give the country a
path to economic recovery.
Sources: Reuters

Indian general elections (Total seats 543)
Bharathiya Janatha Party (BJP) – 240 seats
Indian National Congress (INC) – 99 seats
Samajwadi Party (SP) – 37 seats
Other parties - 167 seats
BJP secured the majority of the Indian lower house (Lokh sabha) with the support of minor parties with a total of 293
seats.
This marked Narendra Modhi’s third term as India’s PM.
Global Elections : India and EU
EU Parliamentary elections (Total seats 720)
European People’s Party (EPP) – 189 seats
Socialists and Democrats (S&D) – 136 seats
European Conservatives and Reformists Group (ECR) – 83 seats
Renew Group – 74 seats
Others – 238 seats
Right-wing parties gained ground in the 2024 European Parliament elections, though less than predicted.
Despite the significant wins and losses, no single bloc emerged with an overall majority in the European Parliament.
Centrist parties are working to form a coalition to support a second term for Ursula von der Leyen of EPP.
Source: Election Commission of India, EU Parliament
EU parliament consists of 720 MPs. Each country is assigned a quota to represent the parliament based on their population.
Political parties with similar political view of each EU country teams up and forms different groups. (EPP, S&D, ECR etc)

Global News Snippets
The Federal Reserve held interest rates
steady in its meeting and pushed out the
start of rate cuts to perhaps as late as
December as policymakers sketched out
their view of an economy that remains
virtually unchanged across its major
dimensions for years to come.
The Bank of England held its main interest rate steady, at
5.25%. The day before the decision, new figures showed
headline annual inflation in Britain dropping to 2% in May,
though the core rate, excluding food and energy, was 3.5%,
and inflation for services didn’t fall as much as expected.
The bank’s next monetary-policy meeting is scheduled for
August 1st, after a general election that is expected to usher
Labour into power.
Japanese authorities spent 9.79tn yen (USD 62.23bn) intervening in
the foreign exchange market to support the yen over the past month,
in moves that kept the currency from testing new lows but are unlikely
to reverse longer-term declines. The yen dropped below 160 per dollar
in the third week of June 2024. Meanwhile, The Bank of Japan kept its
benchmark interest rate unchanged, but indicated it’s considering the
reduction of its purchase of Japanese government bonds. The central
bank left short-term rates unchanged at between 0% to 0.1% at the end
of its two-day policy meeting, as widely expected.
The Swiss National Bank trimmed
its key interest rate by 25 basis
points to 1.25%, continuing cuts at
a time when sentiment over
monetary policy easing remains
mixed among major economies.
Source: The Economist, Federal Reserve, Bank of England, CNN Economy

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 >
Sri Lanka: Emerging from the economic crisis…
Climate change
"Given emerging climate vulnerabilities, Sri Lanka should
strengthen mitigation efforts, including through contingency
budgeting and insurance schemes for natural disasters"
Sri Lanka – 2024 IMF Article IV Consultation – June 2024

Commercial Bank Economic Capsule - June 2024

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