ECONOMYNEXT- Sri Lankan banks have high credit risks due to slow economic growth, high credit growth and lax lending standards, ratings agency Standard & Poor (S&P) said in a report.
"The Sri Lankan banking sector’s resilience is weak and is affected by the country’s low income levels, with an estimated per capita gross domestic product of about US$4,050 in 2018," it said.
"Credit risk is high, in our opinion, given relaxed lending and underwriting standards as well as evolving risk management practices," S&P said.
"The credit risk is accentuated by high growth in credit in the past and a recent slowdown in GDP growth."
Bad loans increased to 3.6 percent of total loans in September 2018 from 2.5 percent at the start of 2018.
Weather disruptions which affected agriculture and related industries, along with banks’ aggressive growth increased bad loans, S&P said.
The ratings agency is expecting bad loans to grow and remain around 4.5-5 percent of total loans over the next 12-18 months due to slower economic growth.
S&P said local banking regulations and supervision is lower than international standards.
Disclosures by banks are low but improving, it said.
However, industry risk is stable, S&P said. (Colombo/Feb01/2019 – SB)