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Wednesday September 27th, 2023

Sri Lanka banks to be re-capitalized based on diagnostic study: Deputy Governor

ECONOMYNEXT – Sri Lanka’s banks will be re-capitalized if an ongoing study shows a need, Central Bank Deputy Governor Yvette Fernando said as lenders faced multiple shocks ranging from a Covid crisis, rate spikes, bond losses and bad loans from a slowing economy.

Sri Lanka’s banks gave debt moratoriums to customers during a Coronavirus crisis where bad loans did not get classified under the usual rules, and in 2022 the impact of the currency crisis hit customers and interest rates also spiked leading to mark-to-market losses on fixed income security portfolios.

Sri Lanka’s central bank allowed mark-to-market losses to be staggered and the accounting body also allowed a concession.

“Currently due to the concessions and moratorium that is in place, we have not had the kind of proper assessment of the banking system,” Deputy Governor Fernando said.

“So there is an effort to do a diagnostic study especially on the big banks, the larger banks. And after that study we will be doing an assessment. And based on that assessment, if there is capital requirements needed, we have to go for recapitalization also.”

“As of now we have allowed banks to use capital buffers and also to stagger certain impacts to the balance sheets because of the sudden impact due to the interest rate changes.”

Sri Lanka’s banks went into the Coronavirus crisis generally well capitalized with the central bank steadily setting rules for banks to boost capital over several earlier years. The larger ‘systemically important’ banks were required to have higher levels of capital.

In addition to mark-to-market losses on rupee bonds, some banks also have significant international sovereign bond holdings, which are due to be re-structured or given hair cuts. There is some uncertainty on whether rupee bonds will also be re-structured.

Domestic gilt rates are now around 30 percent.

The central bank says it is closely watching the impact.

“On an ongoing basis also we will be monitoring whatever changes that are going to happen in the interest rates and also the market developments,” Deputy Governor Fernando said.

“Wherever needed some facilitation will be provided while the diagnostic study will also happen. And based on the final outcome capitalization will also take place.”

Banks are due to report September quarter accounts soon. Most banks have put the brakes on new loans and private credit has been negative for the last three months. (Colombo/Sept07/2022)

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  1. sacre blieu says:

    All this corruption and financial rackets by many involved from politicians down to dishonest bureaucrats and low-level officials, has brought the financial system down to its knees and near collapse. More so, the glaring lack of investigative and even prosecuting initiations on many is to be abhorred. Some smaller banks and banks sponsored by the government at rural and smb levels have defaulted on the deposits by customers who have suffered due to this. SL, the godfather of all corruption and frauds.

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Your email address will not be published. Required fields are marked *

  1. sacre blieu says:

    All this corruption and financial rackets by many involved from politicians down to dishonest bureaucrats and low-level officials, has brought the financial system down to its knees and near collapse. More so, the glaring lack of investigative and even prosecuting initiations on many is to be abhorred. Some smaller banks and banks sponsored by the government at rural and smb levels have defaulted on the deposits by customers who have suffered due to this. SL, the godfather of all corruption and frauds.

Sri Lanka rupee opens at 323.50/324.10 to the US dollar, bond yields stable

ECONOMYNEXT – Sri Lanka’s rupee opened at 323.50/324.10 to the US dollar on Wednesday, after closing on Tuesday at 323.70/324.20 to the US dollar, dealers said.

A bond maturing on 01.08.2026 was quoted at 15.50/70 percent on Wednesday up from Tuesday’s close at 15.45/65 percent.

A bond maturing on 01.05.2028 was quoted at 14.50/55 percent from closing at Tuesday at 14.30/55 percent. (Colombo/Sep27/2023)

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Sinopec to go up to 200 Sri Lanka pumping stations, more possible: Minister

ECONOMYNEXT- China’s Sinopec which has been assigned 150 fuel retail outlets in sri Lanka which were operated by Ceylon Petroleum Corporation, has been given the nod to set up another 50 stations, Energy Minister Kanchana Wijesekera has said.

Out of 150 stations, Sinopec has already signed up 145, Minister Wijesekera had said at a dealer convention of the new company.

‘Also we have given them the opportunity to start 50 brand new stations, in locations that may fit the requirements that exists,” Minister Wijesekera said in comments broadcast by Sri Lanka’s Derana Television.

“But it is not necessary to be restricted to 200 fuel stations. If there are any requests made by you we will be open to consideration for agreements with dealers and distributors.”

Minister Wijesekera attended the dealer convention where China’s ambassador to Colombo Qi Zhenhong was also present.

Sinopec was supposed to enter Sri Lanka in 2003 under current President Ranil Wickremesinghe who was then Prime Minister. At the time India’s IOC entered Sri Lanka.

“Under the leadership of the then prime minister Ranil Wickremesinghe, two companies asked to take part in the retail operations,” Minister Wijesekera said.

“Unfortunately due to the change of government in 2004 the companies could not take part, and due to the political changes and policy changes.

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Sri Lanka making new laws for Colombo financial zone: President

ECONOMYNEXT – Sri Lanka is drawing up a new law for Colombo Financial Zone at the Port City and also an economic commission replace the Board of Investment, President Ranil Wickremesinghe ha said.

Sri Lanka wanted to position itself as a central player in the region providing services including legal and dispute resolution. Several new laws were in the cards.

“One is the new legislation which will replace the port city to make it a Colombo financial zone with jurisdiction for offshore activity,” President Wickremesinghe was quoted as saying at a symposium on alternate dispute resolution.

“The new law has been drafted. And we will see the light of day before the end of the year. Secondly, the BOI will be replaced with the Economic Commission. Which is also looking at the resolution of disputes.”

Sri Lanka has set up an Alternate Dispute Resolution Centre in 2018.

Sri Lanka was looking at Singapore as an example and should strive to match or surpass the country except for costs where it should be a competitive advantage, President had said.

There was a void in the region Sri Lanka can fill.

“This is the key lesson to be derived. Furthermore, it is essential for all lawyers and individuals involved in legal services to broaden their perspectives and explore opportunities beyond their current scope,” he said.

Singapore however has monetary stability and has rejected printing money for growth. Sri Lanka on the other runs from one currency crisis to another by cutting rates with printed money for growth (targeting so-called potential output).

Sri Lanka has in a new law legalized printing money for growth in a new monetary law, the very strategy that drove the country into series of currency crises and eventual default, critics have warned.

The Port City however is a dollarized zone, which will be free of ‘monetary policy’ for growth. (Colombo/Sept27/2023)

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