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Thursday March 23rd, 2023

Sri Lanka doing assets quality review of banks: CB Governor

ECONOMYNEXT – Sri Lanka’s central bank is watching the asset quality of banks which are facing a number of pressures bad loans, changes in interest rates and exchange rate, Governor Nandalal Weerasinghe said.

“We are basically looking at each bank one by one potential risks they could face going forward in terms of the rising NPL’s and interest rate impact and exchange rate impact,” he told reporters.

“Going forward one of the exercises we are doing is asset quality review for us to understand the kind of stress if banks are going to face in the future.

“And then based on assessment we can work with the bank and come out with a recommendation on how to deal with that that situatio¬n”.

In Sri Lanka bad loans tend to rise after interest rate corrections are made to half currency crises triggered by excess credit and falls in loans to deposit ratios seen during such episodes.

In this episode, a Coronavirus crisis had added to bad loans, including in the tourism sector.

So called Stage 3 bad loans have climbed steadily from 8.4 percent of total loans and advances in the first quarter of 2022, to 8.9 percent in the second quarter and 10.9 percent in the third quarter.

The central bank and accounting regulators had given some leeway to banks to account for mark to market losses.

Governor Weerasinghe declined to comment on any potential re-structuring of domestic debt at the present time. Sri Lanka’s government has said no decision has been made to re-structure domestic debt.

The central bank has also started to ease liquidity in banks after looking at whether liquidity shortages were increasing pressure on banks.

“That is why we have introduced several schemes to support liqudity if there is any need – short term,” he said.

The central bank has started injecting liquidity beyond overnight longer-term basis to banks from around January 2022, to ease liquidity shortages and competition for deposits, he said.

Liquidity shortages emerge in a pegged exchange rate regime from dollar outflows coming from credit driven by artificially low interest rates compared to the balance of payments.

The emergence of new liquidity shortages can be stopped by a float or raising rates to stop excess credit.

Any interest rate payment to the central bank by the Treasury which is not a book transaction could also increase liquidity shortages (a transaction other than an internal roll-over of central bank held Treasury bills or bond coupons).

The central bank now holds over 2.5 trillion rupees of domestic Treasuries as a result sterilizing reserve losses and injecting liquidity outright through price controls on bond auctions.

In past crises liquidity shortages begin to ease quickly after external stability is restored by a rate hiked and a float.

This time due to China delaying debt assurances to the International Monetary Fund, after Sri Lanka’s debt was declared unsustainable by the agency, rate falls are delayed. (Colombo/Feb05/2023)

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Sri Lanka establishes committee to investigate aircraft incidents

An aircraft lands at the Jaffna International Airport, which was opened in October 2019 and promises to push the tourism frontiers in Jaffna.

ECONOMYNEXT: Sri Lanka’s has established an expert committee under the state-run Civil Aviation Authority to investigate aircraft accidents and to implement precautionary methods in the Sri Lankan airspace, an Official said.

“Even if it is only one flight, there is a chance an accident may occur,” Civil Aviation Authority of Sri Lanka, Director General, P. A. Jayakantha said.

“This particular committee is there to investigate aircraft accidents and act as a mechanism to take over if something goes wrong”.

Sri Lanka has encountered around 2,700 minor aircraft accidents and incidents mostly on the ground in the 19 years through 2021, the CAA annual reports showed.

The new committee will analyze the past accidents and take precautionary measures while also conducting investigations and provide independent reports in the future, Jayakantha said.

The team is provided with required training and qualifications by the CAA along with an International organization, free of charge.

“Internationally also it is a requirement to have a team to investigate the aircraft accidents,” Jayakantha added.

“For a long time we have not fulfilled this requirement and that is why we established this team with the cabinet approval. Moreover, recently, Sri Lanka’s two aircrafts, one training aircraft and a commercial aircraft met an accident”

The committee will be on active duty, until the Accident Investigation Act is passed and a proper Aircraft Accident and Incident Investigation Bureau is established. (Colombo/ Mar23/2023)

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Sri Lanka bond yields steady, Rupee 319/325 at close

ECONOMYNEXT – Sri Lanka’s treasury bond yields closed steady on Thursday while rupee closed weaker, dealers said.

A 01.07.2025 bond closed at 30.60/31.00 percent on Tuesday, down from 30.25/75 percent on Wednesday.

A 15.09.2027 bond closed at 27.80/28.10 percent, steady from 27.90/28.00 percent from Wednesday.

Sri Lanka rupee closed at 319/325 against the US dollar depreciating from 318/320 from a day earlier. (Colombo/ March23/2023)

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Sri Lanka shares dive to two-week low on local debt restructuring fears

ECONOMYNEXT – The Sri Lanka market fell for a fourth session to a two-week low on Thursday, led by financials, as worries over domestic debt restructuring continued after the IMF loan was approved earlier this week resulting in investors adopting a wait-and-see approach until further clarity was provided, analysts said.

The main All Share Price Index (ASPI) closed down 1.38 percent or 131.07 points to 9,395.98, lowest since March 02.

Analysts said, majority of the banks have been on slower investment trends on fears of domestic debt restructuring after the IMF approval and waiting for more clarity on the local debt restructuring.

“The market is on muted sentiments despite the IMF loan being approved and is going through a period of consolidation,” Ranjan Ranatunga of First Capital Holdings said.

The market saw a net foreign outflow of 298 million rupees and the total offshore inflows recorded so far in 2023 to 3.3 billion rupees.

The most liquid index, S&P SL20, closed 1.64 percent, or 45.33 points, down at 2,722.94.

The market saw a turnover of 3.4 billion rupees on Thursday, above this year’s daily average of 1.8 billion rupees.

This is the highest turnover generated since March 08, which is when the market was driven off of positive sentiments from International Monetary Fund deal hope after Chinese assurances.

Top contributors to revenue was Agalawatte Plantations, on off board transactions of a stake change, contributing revenue of 1.6 billion rupees, Ranatunga said.

Top contributors to revenue industry wise was Food and Beverage and Telecommunications.

Sri Lanka Telecom has been seeing positive uptrends as the Secretary to the Treasury has informed the Board of Directors of Sri Lanka Telecom PLC (SLT) and Lanka Hospitals PLC that the Cabinet of Ministers has granted approval in principle for the divestment of the stakes held by the Treasury Secretary in the two companies.

Top losers were Sampath Bank, Hatton National Bank and Commercial Bank.

Sri Lanka is looking at options to re-structure domestic debt, or local law local currency debt (LLLC), without harming the banking sector and announce them the International Monetary Fund said in a report.

Banks have been witnessing profit taking and selling pressures after continuous uptrends prior to the IMF loan had been approved.

Analysts said, selling pressures is expected to ease as the IMF hopes to reduce inflationary pressures which will in turn lead to reductions in interest rates. (Colombo/Mar23/2023)

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