ECONOMYNEXT – Non-performing loans in Sri Lanka’s banks, which are below recent and historic highs, were highest in tourism, a sector which has seen the most dynamism and new investment in recent years, a central bank report said.
Sri Lanka’s bad loans had grown by 93.9 billion rupees to 254.6 billion rupees in the eight months to August 2018, which was 3.6 percent of total loans, up from a low of 2.5 percent in 2017.
Bad loans ratio was higher at 6 percent in 2016, the central bank said.
Sri Lanka’s credit grew rapidly in 2015 and 2016 amid money printing. Periods of rapid credit growth, tends to reduce the overall bad loan ratio as new loans expand, but bad loans then catch-up as brakes are put on money printing and the economy slows.
In Sri Lanka the rupee has also fallen, due to the operation of a soft-pegged exchange rate, further hurting spending power.
By June 2018, the highest share of bad loans were reported from tourism, which had seen dynamism and new investment.
On one hand new operators with no previous experience in tourism jumped into the sector. While some of the new operators had blazed new trails, innovating the sector, others are now consolidating.
Some established operators are also under pressure, from newer properties.
The central bank said NPL ratio of 5.5 percent was reported from tourism, 5.4 percent from manufacturing, 5.1 percent from information technology & communication services, 4.7 percent from wholesale and retail trade and 4.4 percent from forestry and fishing.
However, the bank’s exposure to the tourism sector was low, with only a 3.6 percent share of private credit. The highest share of loans had been given for personal loans and advances at 20.5 percent, while the construction sector took in 20.3 percent of private credit.
Wholesale and retail trade absorbed 8.6 percent of private credit, while agriculture and fishing got 8.4 percent and financial and business services got 6.8 percent. (Colombo/Nov01/2018)