Banking

Sri Lanka’s SMIB assigned BB(lka) rating by Fitch

Friday March 28, 2025 3:07 pm

ECONOMYNEXT – Sri Lanka-based State Mortgage and Investment Bank (SMIB) has been assigned a first-time national long-term rating of ‘BB(lka)’ by Fitch Ratings. The outlook is stable.

“SMIB’s concentrated retail lending and structural balance-sheet risk influence our risk profile assessment,” the ratings agency said.

“The bank’s main product is unsecured personal loans, at 40% of loans, which we regard as higher risk, but we expect the share to moderate in the medium term.”

SMIB’s structural balance-sheet risk exposes it to net interest margin volatility, Fitch said.

The bank’s small capital base falls short of the regulatory minimum threshold.

The full statement is reproduced below:

Fitch Assigns State Mortgage & Investment Bank a First-Time ‘BB(lka)’ Rating; Outlook Stable

Fitch Ratings – Colombo – 28 Mar 2025: Fitch Ratings has assigned Sri Lanka-based State Mortgage & Investment Bank (SMIB) a first-time National Long-Term Rating of ‘BB(lka)’. The Outlook is Stable.

Key Rating Drivers

Intrinsic Profile Drives Rating: SMIB’s rating reflects its standalone financial strength and factors in its weaker-than- peers funding profile that has led to balance sheet mismatches. Risk controls are showing improvement, but still have room for enhancement, and the bank’s capital position is not as strong as peers. SMIB has a long operating history, but its franchise remains modest as reflected in its negligible market share (0.3% of sector assets at end-3Q24). SMIB’s credit profile, similar to peers, is influenced by Sri Lanka’s improving, yet vulnerable, operating environment, and exposure to the sovereign.

SMIB is a licensed specialised bank that is fully owned by the government of Sri Lanka (CCC+). Its core business is retail focused, with the majority of its exposure to personal loans, housing finance loans backed by Employee Provident Fund (EPF) balances and mortgage loans.

Improving Operating Environment: The operating environment for Sri Lankan banks continues to stabilise, as macroeconomic and systemic risks recede, supporting the recovery in banks’ operational flexibility. Further progress depends on the sovereign’s creditworthiness, given the strong link between the sovereign’s financial health and banks’ operating conditions. We believe an improvement in underlying borrower creditworthiness would ease loan-quality stress, while an uptick in private credit demand would boost new business prospects.

Constrained Business Profile: SMIB’s lending activities remain limited given its mandate as defined in its governing act, the State Mortgage and Investment Bank Law No. 13 of 1975. This has resulted in SMIB’s concentration in housing finance, including EPF and unsecured personal loans (95% of gross loans at end-2024) which we expect to persist. SMIB’s funding franchise is evolving, given its narrower offering compared with peers. That said, SMIB’s ability to generate business volume should be aided by Sri Lanka’s improving economic conditions.

High-Risk Retail Exposure: SMIB’s concentrated retail lending and structural balance-sheet risk influence our risk profile assessment. The bank’s main product is unsecured personal loans, at 40% of loans, which we regard as higher risk, but we expect the share to moderate in the medium term. SMIB’s structural balance-sheet risk exposes it to net interest margin volatility, as seen during Sri Lanka’s recent economic crisis, owing to the duration differences of its assets and liabilities.

Below-Peer Loan Quality: SMIB’s asset-quality metrics are weaker than peers’ with the impaired loan ratio at 33.0% at end-2024 (end-2023: 26%) compared with the Fitch-rated small bank average of 20.8%. This stems from SMIB’s exposure to housing finance and unsecured retail lending. We expect the rising exposure to EPF-backed loans to weigh on the bank’s reported impaired loan ratio, despite their materially lower loss rates due to periodic settlement from the central bank. Excluding EPF-backed loans, the impaired loan ratio is 15pp lower. A decline in the share of unsecured lending, which carry higher loss rates, if sustained, would be positive for its loan quality.

Volatile Profitability: SMIB experiences greater cyclical earnings volatility than peers, a trend we expect to persist. This was evident during the country’s recent economic crisis, when SMIB’s operating profit/risk-weighted assets ratio dropped to -4.6% in 2023, from 2.3% prior to the crisis in 2021, following the spike in interest rates. Having returned to profitability (end-2024: 1.8%), we expect the ratio to modestly improve over the medium term, helped by the favourable interest rate environment and risk density benefits from the higher EPF loan share.

Modest Capital Base: SMIB’s small capital base falls short of the regulatory minimum threshold. We believe the limited access to capital makes the bank’s capitalisation susceptible to profitability and asset-quality shocks. SMIB’s common equity Tier 1 capital ratio of 19.3% at end-2024 was slightly below the Fitch-rated small bank peer average of 20.1%. Residual risk to capital from impaired loans remained high at 246% at end-2024 (peer average: 83%), given SMIB’s large EPF loan exposure.

Funding and Liquidity Challenges: SMIB’s asset-liability mismatches from its longer-tenor loan book and short-tenor concentrated deposit base, relative to peers, weighs on its funding and liquidity profile. Its loan/deposit ratio of 93% at end-2024 was higher than the 86% of small bank peers, while its liquidity position was weaker than peers’ (liquidity coverage ratio of 105%, peer average: 310.5%, regulatory minimum: 100%). We expect the state-related deposits and the bank’s focus on expanding reach to keep its funding challenges at bay.

Rating Sensitivities

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

The National Long-Term Rating is sensitive to a change in the bank’s creditworthiness relative to other Sri Lankan issuers rated on the National Rating scale.

A deterioration in SMIB’s key credit metrics beyond our base-case expectations relative to peers would also pressure the rating, which is driven by the bank’s intrinsic financial strength. This may include a large decline in its liquidity position, which would signal elevated default risk relative to peers. A sustained deterioration in SMIB’s capital position owing to losses from interest rate risk in the balance sheet or a higher-than-expected increase in the share of unprovisioned impaired loans in comparison to peers may also pressure the bank’s rating.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

A sustained improvement in key credit metrics beyond our base-case expectations relative to peers could lead to a rating upgrade. This would include a sustained improvement to SMIB’s liquidity profile, including a reduction in structural mismatches on its balance sheet and earnings volatility in comparison with peers. This is in addition to maintaining adequate capital buffers commensurate with its high-risk appetite, which may include a demonstration of capital access, if necessary.

SMIB has a 1.78% equity stake in Fitch Ratings Lanka Ltd. No shareholder other than Fitch, Inc. is involved in the day- to-day rating operations of, or credit reviews undertaken by, Fitch Ratings Lanka.

Date of Relevant Committee

10 March 2025

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

Not applicable.

(Colombo/Mar28/2025)

Markets

Sri Lanka stocks close down 0.60-pct, dragged by HNB and LOLC

Friday November 13, 2026 3:28 pm

ECONOMYNEXT – Sri Lanka’s Colombo Stock Exchange closed down on Friday, CSE data showed, with the benchmark All Share Price Index moving down 0.60 percent.

The ASPI was down 133.22 points at 22,024.18, while the more liquid S&P SL20 was down 1.06 percent, or 67.55 points, at 6,298.02.

The ASPI ended the week up 784.53 points from last Friday.

Positive contributors to the ASPI were Dialog Axiata (up 0.40 percent at 50.20 rupees), Distilleries Company of Sri Lanka (up 0.52 percent at 58.30 rupees), Aitken Spence (up 3.60 percent at 151.00 rupees), Ceylon Tobacco Company (up 1.05 percent at 1,828.50 rupees), and LOLC Finance (up 1.96 percent at 5.20 rupees).

Hatton National Bank (down 1.88 percent at 403.75 rupees), Richard Pieris and Company (down 6.21 percent at 27.20 rupees), LOLC Holdings (down 2.17 percent at 405.00 rupees), Sampath Bank (down 1.91 percent at 154.00 rupees), and Singer (Sri Lanka) (down 2.40 percent at 77.30 rupees) were top negative contributors.

Market turnover was 3.23 billion rupees. Capital goods led turnover with 869.21 million rupees. (Colombo/Nov13/2026)

Economy

Sri Lanka MP slams budget speech for omitting Tamil national question

Friday November 13, 2026 2:56 pm

ECONOMYNEXT – A Sri Lanka legislator has voiced strong disappointment that the President’s budget speech failed to make a single mention of the Tamil national question.

“It is very unfortunate that in His Excellency the President’s speech, there has not been a single word mentioned about the Tamil national question. Not a single word,” Shanakiyan Rasamanickam said.

“A budget speech generally, is a policy direction of the government for the next year. The budget speech is not only a statement of the country’s fiscal position or the economy’s position. It is the country’s, the government’s, plan, or what the government plans to do the following year. That’s a policy statement.”

Former presidents would at least mention the Tamil question even if it was not resolved, he said.

Former President Ranil Wickremesinghe in his speech, in his policy statement, he would mention: “The Tamil national question must be resolved,” Rasamanickam said.

Former Presidents Maithripala Sirisena and Gotabaya Rajapaksa also mentioned that the national ethnic question must be resolved, he added.

“Every President, every country’s Head of State, in their policy statements, have acknowledged the fact that there is an unresolved national issue, the Tamil national question, that it needs to be resolved. Various governments have proposed various mechanisms; none of them have succeeded, but at least it was mentioned.”

This year’s budget made allocations for the Office of Missing Persons, and the Office of Reparations.

“But the domestic mechanism is a mechanism that the victim community has rejected. So you all are allocating money to a mechanism where the victim community is not going to be part of.”

Last year’s budget 1 billion was allocated to be spent on the Trincomalee and Jaffna airports.

“Where was that 1 billion for the Trincomalee and Jaffna airports spent last year?”

“The trajectory of this government, Honourable Deputy Speaker, is worrying to me. It’s really worrying to me. Because if the objective is to say that there is no Tamil national question, if the objective is to say that you all have resolved any ethnic issue that this country faced, then Honourable Deputy Speaker, then I think the Tamil people will teach this government a very, very, very harsh lesson in the future.” (Colombo/Nov13/2026)

Bonds & Forex

Sri Lanka sells extra Rs6.5bn Treasury bills after auction

Friday November 13, 2026 12:32 pm

ECONOMYNEXT – Sri Lanka has sold 6,500 million rupees of treasury bills offered on tap at an average rate of 9.95 percent, the public debt management office said, bringing the total of bills sold in the week to 85.562 billion rupees.

The issue offered 90 billion.

Total market subscription was 6.5 billion rupees.

The debt office sold a 12-month bill at 9.95 percent.

On Wednesday (11) the debt office raised 79 billion rupees of 3, 6 and 12 month bills after offering 90 billion.

The settlement date is November 13. (Colombo/Nov13/2026)

Construction and Real Estate

Access Engineering Sept quarter group net profit surges 200-pct to Rs4.75bn

Friday November 13, 2026 12:15 pm

ECONOMYNEXT — Sri Lanka’s Access Engineering PLC recorded a group net profit attributable to equity holders of Rs. 4.75 billion for the quarter ended September 30, surging 200 percent from Rs. 1.58 billion a year earlier, interim accounts showed.

Basic earnings per share rose to Rs. 4.08 for the September quarter, up from Rs. 1.58 previously.

Quarterly group revenue expanded 36 percent to Rs. 20.39 billion from Rs. 14.94 billion, underpinned by condominium property handovers — reflected in inventories dropping Rs. 7.69 billion since March to Rs. 35.71 billion — alongside strong automobile sales and steady civil engineering execution.

Cost of sales rose at a slower 27 percent to Rs. 14.34 billion, lifting gross profit by 64 percent to Rs. 6.05 billion and expanding gross margins to 29.7 percent from 24.7 percent.

Other income jumped 144 percent to Rs. 259.9 million, while administrative expenses rose 75 percent to Rs. 1.14 billion, leaving operating profit up 64 percent at Rs. 5.16 billion.

However, finance costs more than doubled, rising 107 percent to Rs. 1.18 billion on elevated group borrowings of Rs. 43.74 billion, partly offset by finance income climbing 302 percent to Rs. 42.2 million.

Share of results from equity-accounted investees rose 122 percent to Rs. 26.7 million, pushing pre-tax profit up 56 percent to Rs. 4.05 billion.

Income tax swung to a net reversal of Rs. 186.6 million from an expense of Rs. 804.1 million, boosted by deferred tax assets on unrelieved losses from a 100 percent enhanced capital allowance claimed by 60 percent-owned radiopharmaceutical subsidiary Access Medical Tracers (Private) Limited.

Total period profit rose 136 percent to Rs. 4.24 billion, with non-controlling interest declining 24 percent to Rs. 164.9 million following last year’s buyout of minority shareholders in Harbour Village (Private) Limited.

No separate exchange gain or loss was itemized in quarterly earnings, though foreign currency translation via associates recorded a Rs. 17.4 million loss in other comprehensive income, alongside USD 16.6 million in corporate guarantees.

Notes also flagged an expected Rs. 1.45 billion recovery from the terminated South Asia Commercial and Logistics Hub project, a Rs. 225 million post-quarter legal settlement already provided for, and a Supreme Court appeal over a 2011/12 PAYE tax ruling.

Group assets stood at Rs. 132.4 billion as of September 30, with net asset value per share at Rs. 46.70, as the Employees’ Provident Fund raised its stake to 5.69 percent.

Access Engineering shares closed at 80.00 rupees at the end of September and are currently trading around 85.80 rupees. (Colombo/Nov13/2026)

Economy

Sri Lanka private sector says timely implementation of Budget 2027 key

Friday November 13, 2026 11:43 am

ECONOMYNEXT – Private sector body, The Ceylon Chamber of Commerce, said it was encouraged by the broad direction of Budget 2027, noting that it reinforces Sri Lanka’s commitment to economic transformation while maintaining policy continuity, macroeconomic stability, and fiscal discipline.

“This continuity is particularly important as the country seeks to transition from economic stabilisation to a more durable, investment-led growth trajectory.”

The chamber also noted several areas where the Budget could have placed greater emphasis to strengthen the country’s growth prospects.

“In particular, there is a need for a stronger focus on attracting Foreign Direct Investment (FDI), accelerating factor market reforms, particularly in land and labour, and fast-tracking public procurement reforms to improve the efficiency and speed of project implementation.

“More targeted and actionable proposals could have been introduced to unlock the potential of sectors with significant growth opportunities, including tourism, agriculture, IT/BPO and logistics.”

The chamber said the budget contains positive measures aimed at enhancing competitiveness, and external sector resilience, while presenting opportunities for focus on sectors that can accelerate growth.

“A number of the key structural reforms identified in last year’s Budget have been carried forward and strengthened, providing greater certainty and predictability to businesses and investors.

“These include the continued implementation of the Trade National Single Window (TNSW), the phased removal of para-tariffs, the rollout of the Digital ID framework, efforts to expand market access through new Free Trade Agreements (FTAs), the strengthening of one-stop-shop investment facilitation mechanisms, progress on Customs reforms, the expansion of Bandaranaike International Airport (BIA), enhanced financing support for SMEs, and reforms relating to the management of State-Owned Enterprises.”

The CCC said that more than 20 proposals submitted by it have been reflected in Budget 2027.

These include measures to strengthen investor facilitation through the establishment of a professionally managed investment promotion agency; continued efforts to improve trade facilitation and export competitiveness; the Government’s consideration of a successor programme with the International Monetary Fund (IMF); accelerated progress on key legislative reforms; the expansion of digital government services; and the promotion of cashless payments and broader digital adoption. The Budget has also captured several priorities relating to energy security, including the accelerated deployment of Battery Energy Storage Systems (BESS) and investments in fuel storage infrastructure, initiatives to optimize underutilized agricultural land, measures to support the expansion of the digital economy and the IT/BPO sector, and tax reforms to support exporters, including the acceptance of newly VAT-registered exporters as eligible exporters.

“The inclusion of these priorities reflects the value of sustained public-private dialogue and demonstrates increasing alignment between national policy objectives and the needs of a competitive, export-oriented economy.

“The priority now must be effective and timely implementation to translate policy commitments into investment, competitiveness, exports and sustainable growth.” (Colombo/Nov13/2026)