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Monday May 10th, 2021
Banking

Sri Lanka bad loans expected to fall after tax cuts: HNB

ECONOMYNEXT- Sri Lanka’s banking sector bad loans are expected to move downwards in 2020 due to the government fiscal stimulus package, a top official from Hatton National Bank said.

“With people having higher income due to the tax cut, we will have better recoveries,” Managing Director Johnathan Alles said.

“So, non-performing loans and impairments will improve,” he said, speaking at the Asia Securities Sri Lanka Investment Conference 2020, themed ‘A big innings on a tricky wicket.”

Alles said the highest tax cuts were on industries which were highly stressed, such as construction.

Construction sector bad loans had especially affected banks. Sri Lanka’s highest loans are for personal consumption, construction and vehicles.

Banking sector profits had flattened in 2019, as provisioning for bad loans ate into the profit and loss account.

Bad loans had grown to 4.8 percent of total loans in the second quarter of 2019 from 3.28 percent in the corresponding quarter in 2018 and 2.7 percent in 2017. In the non-bank finance sector, bad loans were 9.69 percent in September.

Alles said since mid-2019, bad loans have been rising, but at a much lower rate than before.

However, he said some big loans could still go bad across the industry.

“There’s a skeleton or two in the closet, and that’s true for all banks,” he said.

Once bad loans begin to recover, banks will have a higher appetite for giving credit, he said.

“Then, we will have to see how that will affect corporate confidence and performance.”

Asia Securities is expecting credit growth to reach 15-18 percent in 2020.

By mid-2019 Sri Lanka’s annual credit growth had fallen to single digits, at 7.7 percent in July, compared to a central bank target of 13 percent for the year.

Bad loans started rising in Sri Lanka in 2018 after a boom in credit in 2016 (to 21.9 percent). (Colombo/Dec10/2019)

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