Economic capsule

1. Research & Development Unit Research & Development Unit E c o n o m i c C a p s u l e February 2010 

3. E C O N O M I C C A P S U L E Financial Sector News Back to Contents

5. Financial Sector News Research & Development Unit Highlights of the Banking Sector - 2009 Back to Contents Rs. Tn 11.5% % -3.9% 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. 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. Compared to 2008, the volume of loans and advances contracted by 3.9% to Rs. 1.57tn in 2009 . Total Assets Assets Composition 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. Loans & Advances Deposits Rs. Tn Rs. Tn 18.5%

7. F e b r u a r y 2 0 1 0 E C O N O M I C C A P S U L E Economy and Business News Back to Contents

13. Economy and Business News Research & Development Unit Q+A: Sri Lanka to Face Loss of EU's GSP+  Reuters Back to Contents Q: WHAT IS THE EU GENERALISED SYSTEM OF PREFERENCES PLUS (GSP+)? 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. WHY IS THERE A POSSIBILITY OF SRI LANKA LOSING GSP+? 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. WHY DOES IT MATTER FOR SRI LANKA? 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. Q A Q A Q A

14. Economy and Business News Research & Development Unit Q+A: Sri Lanka to Face Loss of EU's GSP+  Reuters (cont…) Back to Contents IS THERE ANY WAY SRI LANKA COULD GET GSP+ RENEWED? 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 WHAT DOES LOSING GSP+ MEAN FOR THE SRI LANKAN ECONOMY? 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. Q A Q A

15. Economy and Business News Research & Development Unit Tourist Arrivals up 31.9% in January Back to Contents 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.

17. Economy and Business News Research & Development Unit Inflation (CCPI) – February 2010 Back to Contents Feb 10’ Jan 10’ Point to Point Change % 6.9 6.5 Annual Average Change % 3.1 3.1

18. J a n u a r y 2 0 1 0 E C O N O M I C C A P S U L E Economic & Financial Sector Snippets Back to Contents

20. J a n u a r y 2 0 1 0 E C O N O M I C C A P S U L E Analysis & Forecast Back to Contents

22. Analysis & Forecast Fiscal Position (cont…) Research & Development Unit Back to Contents 2007 2008 2009 (Target) 2009 (Prov.) Revenue and Grants/GDP (%) 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

23. 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. The views expressed in Economic Capsule are not necessarily those of the Management of Commercial Bank of Ceylon PLC Change before you have to. Jack Welch Jack Welch is the author of Winning, a #1 Wall Street Journal and international bestseller. In 2001, he wrote his #1 New York Times and also international best-selling autobiography, Jack: Straight from the Gut. From 2005 – 2009, together with his wife Suzy Welch, he wrote a widely read weekly column, The Welch Way. This column appeared in BusinessWeek magazine and was published by the New York Times syndicate and appeared in more than 45 major newspapers around the world, reaching more than 8 million readers. He recently launched the “Jack Welch Management Institute,” a unique online MBA program aimed at giving students around the world and at every career level the tools to transform their lives and the organizations of the future. Jack is the head of Jack Welch, LLC, where he serves as Special Partner with the private equity firm, Clayton, Dubilier & Rice and is a advisor to IAC (Interactive Corp). He speaks to business audiences and students around the world. Born in Salem, Massachusetts, Jack received his undergraduate degree from the University of Massachusetts and an MS and PhD in chemical engineering from the University of Illinois. He began his career with the General Electric Company in 1960, and in 1981 became the Company’s 8th Chairman & CEO. During his 20+ year tenure as CEO, the Company's market capitalization rose from $13 billion to $400 billion. In 2000, he was named “Manager of the Century” by Fortune magazine. Jack is the father of 4 children and has 10 grandchildren. He is an avid Red Sox fan, is a life-long golfer, and is a fanatic about sports and business news in every medium. - www.welchway.com