combank_economic_capsule_july

1. Economic Capsule July 2011

3. Financial Sector N e w s

6. Commercial Bank No 02 in LMD’s ‘Most Respected 2011’ Commercial Bank has been ranked at No 2 in the LMD's ‘Most Respected 2011’ list amongst all corporates in Sri Lanka. The bank was also ranked top amongst all financial institutions. ‘ Most Respected’ survey for LMD covered a sample of 800 businesspeople attached to organisations operating within the limits of Greater Colombo, as was the case last year. A random sample was drawn from and weighted on the basis of population proportions of organisations, so as to best represent the mix of entities operating in Sri Lanka. Research & Development Unit

8. Service Points Openings Kataragama Opening Research & Development Unit 199 Kuruwita

9. Economic & Business N e w s

10. Fitch Upgrades Sri Lanka’s Rating to 'BB-‘ Sri Lanka’s Credit Outlook Raised by Moody's & S&P to 'Positive' Fitch & S&P Grading AAA+ AAA AAA- AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- (Fitch) B+ (S&P) B B- CCC+ CCC CCC- CC+ CC CC- C+ C C- D+ D D- Moody’s Grading Aaa1 Aaa2 Aaa3 Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3 Caa1 Caa2 Caa3 Ca1 Ca2 Ca3 C1 C2 C3 Investment Grade Investment Grade Fitch rating: 3 levels below the investment grade S&P & Moody ’ s rating: 4 levels below the investment grade Cont… The views expressed in Economic Capsule are not necessarily those of the Management of Commercial Bank of Ceylon PLC Research & Development Unit

12. Sri Lankan USD 1 Bn Bond Issue Oversubscribed Sri Lanka’s international sovereign bond for USD 1 billion at an interest rate of 6.25% was oversubscribed by more than 7.5 times. The views expressed in Economic Capsule are not necessarily those of the Management of Commercial Bank of Ceylon PLC Research & Development Unit Year Amount (USD mn) Period Interest Rate Oversubscribed by More Than Distribution USA Europe Asia 2007 500 5 years 8.25 % 3 times 40.0 % 30.0 % 30.0 % 2009 500 5 years 7.40 % 13 times 45.0 % 31.0 % 24.0 % 2010 1,000 10 years 6.25 % 6 times 52.5 % 25.0 % 22.5 % 2011 1,000 10 years 6.25 % 7.5 times 43.0 % 30.0 % 27.0 %

14. The Emerging World Begins to Seize the Lion's Share of Global Markets REAL GDP in most rich economies is still below its level at the end of 2007. In contrast, emerging economies’ output has jumped by almost 20% over the same period. The rich world’s woes have clearly hastened the shift in global economic power towards the emerging markets. But exactly how big are emerging economies compared with the old developed world? This chart looks at a wide range of indicators: Cont… Source: www.economist.com The views expressed in Economic Capsule are not necessarily those of the Management of Commercial Bank of Ceylon PLC Research & Development Unit

15. The Emerging World Begins to Seize the Lion's Share of Global Markets (cont…) The chart below shows more detail of how the economic clout of emerging economies has risen over time: Source: www.economist.com The views expressed in Economic Capsule are not necessarily those of the Management of Commercial Bank of Ceylon PLC Research & Development Unit

18. ADB: Inflation Threatens East Asian Growth The region faces risks that also include more volatile financial markets and destabilizing inflows of short term capital, also known as "hot money.“ In the first half of 2011, economic growth across East Asia eased from a blistering pace as inflation surged across much of the region, driven by higher commodity prices and strong economic recovery. Other sources of rising prices in the East Asian economies are climbing property prices and the devastating tsunami and nuclear disaster in Japan in March (which spurred a debate over the use of nuclear power), which could drive up energy prices by boosting demand for other energy sources such as oil and gas. The threat of inflation has been a major worry in Asia this year. The ADB has warned that surging food prices of 10 % on average in many Asian economies could drive 64 mn more people into poverty. According to ADB, surging inflation, a weak post-tsunami economic recovery in Japan and debt woes in the U.S. and Europe threaten East Asia's economic outlook. Headline Inflation (y-o-y, %) Cont… The views expressed in Economic Capsule are not necessarily those of the Management of Commercial Bank of Ceylon PLC Research & Development Unit

19. ADB: Inflation Threatens East Asian Growth (cont…) ADB expects governments to use a mix of different methods to fight inflation, including allowing their currencies to strengthen. That would make imported goods including food cheaper. The ADB's economists also fretted about the dismal prospects for the U.S. and Europe, which are plagued by high unemployment and debt problems. Both are major customers for East Asia's exports. The region could also be hurt if the U.S. government's top-notch credit rating is downgraded amid fears that U.S. lawmakers may fail to come up with a way to prevent a debt default in the world's biggest economy. That could depress the dollar against other currencies, hurting Asian governments that hold large amounts of U.S. government debt in their foreign reserves. China is the biggest holder of U.S. government debt, with USD 1.15 trillion in Treasury debt by the end of April,2011. Meanwhile, the Japanese economy which is already struggling with recession following production disruptions caused by the tsunami, must also cope with a strengthening yen, which will hurt its exports by making them more expensive. The views expressed in Economic Capsule are not necessarily those of the Management of Commercial Bank of Ceylon PLC Research & Development Unit

25. Analysis & Forecast  Research & Development Unit Interest Rates (cont…) The views expressed in Economic Capsule are not necessarily those of the Management of Commercial Bank of Ceylon PLC

26. 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. “ People have asked me why Sri Lanka should bother to increase its ease of doing business rankings when India has managed to attract high FDI with the same rankings. But the reality is that Sri Lanka can never offer the same economy of scale as India can. Therefore, Sri Lanka must be better than India to attract FDI” Dr. Koshi Mathai - IMF Resident Representative , Sri Lanka Research & Development Unit