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Sri Lanka NPLs rise to 5.3-pct of loans in 2020 June

ECONOMYNEXT – Non-performing loans at Sri Lanka’s commercial banks grew to 5.3 percent of total loans by June 2020, from 4.9 percent in March, while at specialized banks NPLs rose to 7.1 percent from 6.6 percent, central bank data showed.

Sri Lanka’s economy has been hit by a Coronavirus lockdown up to the second quarter and a collapse of tourism, but the current administration has controlled the spread of the disease allowing economic activity and exports to resume.

But a self-imposed import embargo driven by Latin-American style import substitution after a fall in the currency in March and April is hurting firms and economic activity.

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Private credit has been negative in the past three months, and the currency had been allowed to appreciate.

Weak or negative credit tends to elevate the NPL ratio.

Around 30 to 40 percent of loans books of some banks are in moratorium given under a regulatory direction, which ends in September, after which bad loans may rise, analysts say.

Banks have however have made estimated provisions.

The Coronavirus crises came amid depressed economic activity from a 2018 currency crisis driven by rate cuts and liquidity injections of the central bank.

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Sri Lanka however has seen higher levels of bad loans after earlier currency crises

After a 2012 currency crisis bad loans of commercial banks peaked at 5.7 percent and at specialized banks 12.5 percent in the first quarter of 2014.

Meanwhile commercial banks had capital adequacy or around 16.4 percent by June 2020 and specialized banks 16.5 percent to absorb losses, central bank data showed. (Colombo/Sept10/2020)