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Friday March 31st, 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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  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 closes at 328/329 against the US dollar, bond yields down

ECONOMYNEXT – Sri Lanka’s treasury bond yields were down and the rupee closed at 328/329 against the US dollar in the spot market on Friday, dealers said.

A 01.07.2025 bond closed at 29.80/30.20 percent on Friday, down from 31.25/30 percent on Thursday.

A 15.09.2027 bond closed at 27.45/55 percent, steady from 28.80/85 percent on Thursday.

Sri Lanka rupee closed at 328/329 rupees against the US dollar, from 327/330 rupees from a day earlier. (Colombo/ March31/2023)

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Sri Lanka tax hike: no response from president, professionals to discuss next steps

GMOA Secretary Haritha Alutghe

ECONOMYNEXT – Sri Lanka’s trade unions and professional associations who have been agitating against an International Monetary Fund (IMF) backed progressive tax hike will meet to discuss further union action after a letter to the president went unanswered.

Government Medical Officers’ Association (GMOA) secretary Dr Haritha Aluthge told reporters on Friday March 31 that the unions will meet as the self-styled Professionals’ Trade Union Alliance (PTUA) collective which have so far been organising strikes and demonstrations demanding a revision of the taxes.

The PTUA has been awaiting a promised meeting with President Ranil Wickremesinghe for some days now. Aluthge previously said on Monday that if the meeting did not materialise, the unions would be compelled to go on strike.

The issue has become stagnant due to government inaction, said Aluthge at Friday’s press conference.

“The PTUA informed the president in writing yesterday for the last time to please understand the gravity of this situation and to immediately give us a meeting and present the government’s interim solution, through which the government can take measures to ease the sense of tension among professionals,” he said.

The purpose of the meeting is to discuss an “interim solution” to the professionals’ grievances over the progressive income tax hike until a reported revision that’s due in six months when the country’s recently approved 17th IMF programme comes up for review.

“Sadly, there has still been no response,” the GMOA official said.

All unions and professional associations will meet Friday evening together with a number of other unions to discuss further action, he added.

The privately-owned English-language weekly newspaper The Sunday Times reported on March 26 that the IMF had indicated the possibility of revising some of the taxes imposed as part of the IMF’s staff-level agreement with Sri Lanka when the programme comes up for review in six months.

According to the newspaper, IMF officials had conveyed this to representatives of trade unions during a virtual roundtable held last Friday March 24. The virtual meeting was held on the initiative of the IMF and was attended by trade unions and professional associations representing the PTUA including the GMOA. (Colombo/Mar31/2023)

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Sri Lankan transport associations cut haulage and transportation fees after fuel price cut

ECONOMYNEXT –  Sri Lanka Association of Container Transporters and fuel bowser owners has decided to reduce the haulage charges and transportation fee, after the government cut the auto diesel prices by 80 rupees, association officials said.

“Due to the recent reduction in Auto Diesel price from March30, 2023, the committee has decided to reduce haulage charges by 7 percent,” association said.

Sri Lanka Private Petroleum Tanker owners has also decided to reduce the transportation fee of fuel by 8 -10 percent from April onwards.

“We will be meeting with the association members and will be deciding on exactly how much we will be reducing,” the General Secretary of the association Nimal Amarasekera told EconomyNext.

“We hope to reduce it by 8-10 percent and will be applied.”

Meanwhile United Lanka Fuel Transport Bowser Owners Association said, the price reduction will be done, and the specific amount will be calculated using the cost per kilometer for a transporting bowser.

“We have different types of bowsers such as 13,200 litre and 19,800 litre likewise,” Association President K.W. Charles told EconomyNext.

“So the cost per kilometer per bowser is different and after we calculate only we can give a specific percentage.

“It will come to effect from this month and the payments for the next month will be based on the new prices.”

Charles said, this is only based on the price reduction of fuel, however several costs as maintenance and spare part costs should also be considered when deciding the transportation cost, which is also being discussed with the Ceylon Petroleum Corporation.

Sri Lanka slashed fuel prices with effect from Wednesday (29) midnight, Power and Energy Minister Kanchana Wijesekera said, after a protest by trade unions of state-run fuel retailer Ceylon Petroleum Corporation (CPC) resulting in queues at filling stations due to supply disruption.

The price of Petrol 92 Octane will be slashed by 15 percent or 60 rupees to 340, Petrol 95 Octane 95 will be reduced by 26.5 percent or 135 rupees to 375, Auto Diesel by 19.8 percent or 80 rupees to 325, and kerosene by 3.3 percent or 10 rupees to 295. (Colombo/ March31/2023)

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