Banking

Sri Lanka’s Bank of Ceylon outlook on [SL] AAA rating cut to negative by ICRA

Friday October 18, 2019 2:58 pm

ECONOMYNEXT – The outlook on the top [SL]AAA rated state-run Bank of Ceylon has been cut to negative from stable by ICRA Lanka, a rating agency on higher bad loans and lower profits which had eroded capital.

“The revision in outlook factors in BOC’s moderate capitalisation levels with steady decline in capital buffers and weakening asset quality which impacted its earnings profile,” ICRA Lanka said.

Bank of Ceylon has reported a Core Capital Ratio of 10.73 percent and Total Capital Adequacy Ratio of 15.48 percent as of Jun-19 which is still higher than the regulatory requirement of 10.00 percent and 14.00 percent.

ICRA said there was a gradual decline in the Bank’s capital buffers due to moderation in internal generation mainly because of weak asset quality.

“With less than 1% buffer over the regulatory capital requirements, the ability of the Bank to absorb any further asset quality shocks remains low,” the agency said.

Non-performing loans had risen to 5.34 percent by June, from 3.62 percent in December 2018.

Sri Lanka’s bad loans are rising as a so-called ‘flexible exchange rate’ a highly unstable soft-peg driven by contradictory money (liquidity management) and exchange policies (convertibility undertakings) collapsed in 2018.

The gap between currency collapses are narrowing due to liquidity injections and skewed convertibility undertakings which are weighted to push the currency down, critics have pointed out.

There have been calls from critics to reform the central bank’s governing law to make it more rule-based so that it cannot practice discretionary policy to trigger monetary instability.

The full statement is reproduced below:

ICRA Lanka revises outlook on the issuer rating of Bank of Ceylon to Negative

Rating action

ICRA Lanka Limited, subsidiary of ICRA Limited, a group company of Moody’s Investors Service, has reaffirmed the issuer rating of Bank of Ceylon (BOC or the Bank) at [SL]AAA (pronounced SL triple A). The outlook on the rating is revised to Negative from Stable.

Rationale

The revision in outlook factors in BOC’s moderate capitalisation levels with steady decline in capital buffers and weakening asset quality which impacted its earnings profile. The Bank reported a Core Capital Ratio of 10.73% and Total Capital Adequacy Ratio of 15.48% in Jun-19 as compared to the regulatory requirement of 10.00%1 and 14.00%, respectively.

However, ICRA Lanka noted the gradual decline in the Bank’s capital buffers due to moderation in internal generation mainly because of weak asset quality. With less than 1% buffer over the regulatory capital requirements, the ability of the Bank to absorb any further asset quality shocks remains low.

ICRA Lanka however expects timely and adequate equity infusion by the Government of Sri Lanka (GoSL) to maintain the capitalization profile. The rating continues to factor in the 100% Government of Sri Lanka ownership, which provides a strong likelihood of sovereign support and BOC’s leading position in the Sri Lankan banking industry.

The Bank’s asset quality deteriorated with gross NPA ratio increasing to 5.34% in H1CY2019 as of Jun-19 vis-à-vis 3.62% as of Dec-18 due to weak macroeconomic conditions in the given period. The rating factors in its established franchise, healthy deposit profile and comfortable liquidity position with liquidity coverage ratio (LCR) at 199.76% as in Jun-19.

The rating also noted the moderation in earnings profile with return on assets (RoA2) at 0.92% in CY2018 (0.62% in 6MCY2019) as compared to 1.18% in CY2017. The above, however exert further pressure on the overall credit profile of the Bank and steady improvement of these indicators would be crucial from a rating perspective.

Outlook: Negative

The Negative outlook reflects the shortfall in BOC’s capital buffers over the regulatory requirement coupled with weakening of the asset quality and profitability indicators. ICRA Lanka believes that BOC will continue to benefit from timely and adequate capital support from GoSL.

The outlook may be revised to ‘Stable’ in case of a steady maintenance of the capital buffers above regulatory capital requirement, improvement in the asset quality profile, while maintaining a comfortable earnings profile. 2

Key rating drivers

Credit strengths

100% government owned, systemically important bank with long term track record and established franchise; BOC is a licensed commercial bank, 100% owned by the GoSL. The Bank is the largest commercial bank in Sri Lanka with systemic importance, which provides strong likelihood of sovereign support.

BOC accounts for about 21% of the aggregate advances and about 24% of the aggregate deposits of all licensed commercial banks (LCBs) in Sri Lanka as on June 30, 2019.

The Bank operates with 579 branches covering all the regions in Sri Lanka; however, the Western province accounted for around 70% of the total loans of the Bank as of Jun-19. BOC’s total net advances grew by 23% YoY in CY2018 (16% in CY2017) which was higher than the 20% growth reported by the LCB industry during the same period. The high growth was mainly supported by lending to government entities related to infrastructure development projects.

During 6MCY2019, net advances grew by 18% YoY, driven by growth in lending to the Government and State-Owned Enterprises (SOEs). The rating factors the Bank’s position as one of the key lenders to the GoSL and SOEs, which accounted for about 31% of the total portfolio as in Jun-19 (~34% in December 2018 and ~30% in June 2018); the Bank expects to maintain the exposure at the present level.

Healthy deposit profile with CASA ratio above the systemic level; BOC reported a healthy deposit profile with total deposit growth of 13% YoY, which was above the industry average growth of 10% YoY as in June 2019. The Bank has a comfortable mix of both foreign and local deposits, aided by the Bank’s well-established branch network and dominant position in the remittance business.

However, the Bank’s CASA3 ratio moderated to 34% as in Dec-18 from 37% as in Dec-17, although it remained above the systemic levels of 32% and 34% in the same period. During 6MCY2019, the Bank reported a CASA ratio of 33% as compared to the system average of 31%.

3 Current Account Savings Account Ratio

Comfortable liquidity position; The Bank’s liquidity profile remained comfortable as a result of lower credit growth and higher deposit growth which mainly resulted in positive cumulative short term (less than 12 months) maturity mismatch (1.71% in Jun-19). The Liquidity Coverage Ratio (All Currencies) was comfortably maintained at 132% (regulatory requirement 100%) and Liquid Asset Ratio (Domestic Currency) stood at 27% (regulatory requirement 20%) in Jun-19.

Credit challenges

Weakening asset quality; BOC reported a gross NPA of 5.34% as of Jun-19 as compared to system
average of 4.78% in the same period. The Bank’s Gross NPA ratio witnessed a sharp increase in Jun-19 as compared to the Gross NPA of 3.62% as in Dec-18 and 4.50% as in Jun-18.

The Gross NPA increased as a result of rise in fresh slippages to 7.68% in the quarter ended Jun-19 as compared to 4.79% reported in the quarter ended Jun-18. BOC’s asset quality deteriorated since 2018 mainly as a result of poor performance in construction and agriculture sectors which affected the corporate and SME portfolios of the Bank.

The Bank has taken measures to recover the NPAs by expediting legal actions and restructuring the facilities. The Net NPA ratio of the Bank was 1.92% as compared to system average of 3.00% as of Jun-19.

Net NPA ratio of the Bank was lower than the system as a result of its high provision coverage ratio of 64.09% as compared to the system average of 48.51% as in Jun-19. ICRA Lanka noted that the provision coverage ratio has gradually decreased from 76.00% as in Dec-18 and 87.94% in Dec-17.

A deterioration in the Bank’s asset quality has increased its solvency ratio (Net NPA/ Networth) to 22.07% as in Jun-19, as compared to 10.62% in Dec-18 3 (18.57% in Jun-18). However, the Bank’s solvency ratio was better as compared to Licensed Commercial Banking sector average of 31.38% as in Jun-19.

Moderate capitalization levels; The common equity tier I including capital conservation buffer ratio of BOC was 10.73% (regulatory requirement 10.00%) and capital adequacy ratio (CAR) was 15.48% (regulatory requirement 14.00%) as in Jun-19. ICRA Lanka noted that the Bank continues to have only a minimal buffer of less than 1% over the Tier I regulatory requirement of 10.0%.

A significant first day net adjustment of LKR 7.4 Bn was made to BOC’s capital because of SLFRS-9 transition, impact of which would be spread over four years starting 2018 for capital adequacy computation, as per the CBSL directions.

The Bank, in view of the above and moderation in its internal generation is expected to cap its dividend payments to conserve capital for meeting the enhanced capital requirement from 2019. ICRA Lanka estimates that BOC would require significant additional capital of LKR 15-18 Bn to maintain tier-I capital with a 1% capital buffer over the regulatory requirement over the next two years, assuming a 7.5%-10.0% growth in Risk Weighted Assets (RWA).

The Bank would also have to raise commensurate Tier-II capital for meeting the overall CAR requirement. BOC received LKR 20 Bn as equity capital from GoSL during 2014 to 2018 and, ICRA Lanka expects timely capital support from GoSL in future due to the systemic importance of the Bank.

Going forward, maintenance of adequate buffers (at least 1%) over and above the minimum capitalisation requirements (Tier-I and overall CAR) would be critical from a rating perspective.

Declining profitability indicators; The Bank’s yield on advances moderated to 11.23% in CY2018 as compared to 11.55% in CY2017 due to its volume driven expansion strategy and increased lending to GoSL & SOEs, which are relatively low yielding.

The cost of interest-bearing funds reduced to 6.60% in CY2018 as compared to 6.74% in CY2017 mainly due to Bank’s high CASA ratio of 34.14% as compared to system average of 31.97% as in Dec-18. As a result, the Bank’s margins moderated to 3.11% in CY2018 as compared to 3.22% in CY2017.

Further, the cost to income ratio 4of the Bank was 49.29% in H1CY2019 as compared to 47.27% in CY2018 (47.38% in H1CY2018). The Bank’s operating expenses to total assets ratio remained range bounded to 1.9-2.0% since 2017.

The Credit Cost increased to 0.92% in H1CY2019 as compared to 0.71% in CY2018 (0.72% in H1CY2018) as a result of sharp increase in slippages during the same period. BOC’s, RoA moderated to 0.62% in H1CY2019 and 0.92% in CY2018 as compared to 0.78% in H1CY2018. ICRA Lanka noted that the Bank’s ROA remained lower than the system average of 0.88% in H1CY2019 and 1.14% in CY2018.

A moderation in the margins, rise in credit cost and new regulatory levies imposed by the government resulted in a decline in the Bank’s RoA. Further weakening of the asset quality would exert pressure on profitability of the Bank. ICRA Lanka notes that significant improvement in the interest margins and control on credit cost would be crucial to maintain a healthy earnings profile over the medium term.

4 Operating expenses include VAT, NBT and Debt Servicing Levy

Analytical approach: For arriving at the ratings, ICRA has applied its rating methodologies as indicated below.

Links to applicable criteria: ICRA Lanka’s Credit Rating Methodology for Banks

About the entity:

BOC is the largest licensed commercial bank in Sri Lanka; 100% owned by the Government of Sri Lanka. The Bank with assets of over LKR 2.23 trillion accounts for approximately 21% of the total banking sector assets as of Jun-19. BOC was incorporated in August 1939 under the Bank of Ceylon Ordinance No. 53 of 1938. Currently, BOC operates with over 579 branches including 3 overseas branches in Maldives, Chennai and Seychelles. The Bank also operates a subsidiary in the UK – Bank of Ceylon (UK) Limited. The BOC

Markets

Sri Lanka stocks close down 0.60-pct, dragged by HNB and LOLC

Friday November 13, 2026 3:28 pm

ECONOMYNEXT – Sri Lanka’s Colombo Stock Exchange closed down on Friday, CSE data showed, with the benchmark All Share Price Index moving down 0.60 percent.

The ASPI was down 133.22 points at 22,024.18, while the more liquid S&P SL20 was down 1.06 percent, or 67.55 points, at 6,298.02.

The ASPI ended the week up 784.53 points from last Friday.

Positive contributors to the ASPI were Dialog Axiata (up 0.40 percent at 50.20 rupees), Distilleries Company of Sri Lanka (up 0.52 percent at 58.30 rupees), Aitken Spence (up 3.60 percent at 151.00 rupees), Ceylon Tobacco Company (up 1.05 percent at 1,828.50 rupees), and LOLC Finance (up 1.96 percent at 5.20 rupees).

Hatton National Bank (down 1.88 percent at 403.75 rupees), Richard Pieris and Company (down 6.21 percent at 27.20 rupees), LOLC Holdings (down 2.17 percent at 405.00 rupees), Sampath Bank (down 1.91 percent at 154.00 rupees), and Singer (Sri Lanka) (down 2.40 percent at 77.30 rupees) were top negative contributors.

Market turnover was 3.23 billion rupees. Capital goods led turnover with 869.21 million rupees. (Colombo/Nov13/2026)

Economy

Sri Lanka MP slams budget speech for omitting Tamil national question

Friday November 13, 2026 2:56 pm

ECONOMYNEXT – A Sri Lanka legislator has voiced strong disappointment that the President’s budget speech failed to make a single mention of the Tamil national question.

“It is very unfortunate that in His Excellency the President’s speech, there has not been a single word mentioned about the Tamil national question. Not a single word,” Shanakiyan Rasamanickam said.

“A budget speech generally, is a policy direction of the government for the next year. The budget speech is not only a statement of the country’s fiscal position or the economy’s position. It is the country’s, the government’s, plan, or what the government plans to do the following year. That’s a policy statement.”

Former presidents would at least mention the Tamil question even if it was not resolved, he said.

Former President Ranil Wickremesinghe in his speech, in his policy statement, he would mention: “The Tamil national question must be resolved,” Rasamanickam said.

Former Presidents Maithripala Sirisena and Gotabaya Rajapaksa also mentioned that the national ethnic question must be resolved, he added.

“Every President, every country’s Head of State, in their policy statements, have acknowledged the fact that there is an unresolved national issue, the Tamil national question, that it needs to be resolved. Various governments have proposed various mechanisms; none of them have succeeded, but at least it was mentioned.”

This year’s budget made allocations for the Office of Missing Persons, and the Office of Reparations.

“But the domestic mechanism is a mechanism that the victim community has rejected. So you all are allocating money to a mechanism where the victim community is not going to be part of.”

Last year’s budget 1 billion was allocated to be spent on the Trincomalee and Jaffna airports.

“Where was that 1 billion for the Trincomalee and Jaffna airports spent last year?”

“The trajectory of this government, Honourable Deputy Speaker, is worrying to me. It’s really worrying to me. Because if the objective is to say that there is no Tamil national question, if the objective is to say that you all have resolved any ethnic issue that this country faced, then Honourable Deputy Speaker, then I think the Tamil people will teach this government a very, very, very harsh lesson in the future.” (Colombo/Nov13/2026)

Bonds & Forex

Sri Lanka sells extra Rs6.5bn Treasury bills after auction

Friday November 13, 2026 12:32 pm

ECONOMYNEXT – Sri Lanka has sold 6,500 million rupees of treasury bills offered on tap at an average rate of 9.95 percent, the public debt management office said, bringing the total of bills sold in the week to 85.562 billion rupees.

The issue offered 90 billion.

Total market subscription was 6.5 billion rupees.

The debt office sold a 12-month bill at 9.95 percent.

On Wednesday (11) the debt office raised 79 billion rupees of 3, 6 and 12 month bills after offering 90 billion.

The settlement date is November 13. (Colombo/Nov13/2026)

Construction and Real Estate

Access Engineering Sept quarter group net profit surges 200-pct to Rs4.75bn

Friday November 13, 2026 12:15 pm

ECONOMYNEXT — Sri Lanka’s Access Engineering PLC recorded a group net profit attributable to equity holders of Rs. 4.75 billion for the quarter ended September 30, surging 200 percent from Rs. 1.58 billion a year earlier, interim accounts showed.

Basic earnings per share rose to Rs. 4.08 for the September quarter, up from Rs. 1.58 previously.

Quarterly group revenue expanded 36 percent to Rs. 20.39 billion from Rs. 14.94 billion, underpinned by condominium property handovers — reflected in inventories dropping Rs. 7.69 billion since March to Rs. 35.71 billion — alongside strong automobile sales and steady civil engineering execution.

Cost of sales rose at a slower 27 percent to Rs. 14.34 billion, lifting gross profit by 64 percent to Rs. 6.05 billion and expanding gross margins to 29.7 percent from 24.7 percent.

Other income jumped 144 percent to Rs. 259.9 million, while administrative expenses rose 75 percent to Rs. 1.14 billion, leaving operating profit up 64 percent at Rs. 5.16 billion.

However, finance costs more than doubled, rising 107 percent to Rs. 1.18 billion on elevated group borrowings of Rs. 43.74 billion, partly offset by finance income climbing 302 percent to Rs. 42.2 million.

Share of results from equity-accounted investees rose 122 percent to Rs. 26.7 million, pushing pre-tax profit up 56 percent to Rs. 4.05 billion.

Income tax swung to a net reversal of Rs. 186.6 million from an expense of Rs. 804.1 million, boosted by deferred tax assets on unrelieved losses from a 100 percent enhanced capital allowance claimed by 60 percent-owned radiopharmaceutical subsidiary Access Medical Tracers (Private) Limited.

Total period profit rose 136 percent to Rs. 4.24 billion, with non-controlling interest declining 24 percent to Rs. 164.9 million following last year’s buyout of minority shareholders in Harbour Village (Private) Limited.

No separate exchange gain or loss was itemized in quarterly earnings, though foreign currency translation via associates recorded a Rs. 17.4 million loss in other comprehensive income, alongside USD 16.6 million in corporate guarantees.

Notes also flagged an expected Rs. 1.45 billion recovery from the terminated South Asia Commercial and Logistics Hub project, a Rs. 225 million post-quarter legal settlement already provided for, and a Supreme Court appeal over a 2011/12 PAYE tax ruling.

Group assets stood at Rs. 132.4 billion as of September 30, with net asset value per share at Rs. 46.70, as the Employees’ Provident Fund raised its stake to 5.69 percent.

Access Engineering shares closed at 80.00 rupees at the end of September and are currently trading around 85.80 rupees. (Colombo/Nov13/2026)

Economy

Sri Lanka private sector says timely implementation of Budget 2027 key

Friday November 13, 2026 11:43 am

ECONOMYNEXT – Private sector body, The Ceylon Chamber of Commerce, said it was encouraged by the broad direction of Budget 2027, noting that it reinforces Sri Lanka’s commitment to economic transformation while maintaining policy continuity, macroeconomic stability, and fiscal discipline.

“This continuity is particularly important as the country seeks to transition from economic stabilisation to a more durable, investment-led growth trajectory.”

The chamber also noted several areas where the Budget could have placed greater emphasis to strengthen the country’s growth prospects.

“In particular, there is a need for a stronger focus on attracting Foreign Direct Investment (FDI), accelerating factor market reforms, particularly in land and labour, and fast-tracking public procurement reforms to improve the efficiency and speed of project implementation.

“More targeted and actionable proposals could have been introduced to unlock the potential of sectors with significant growth opportunities, including tourism, agriculture, IT/BPO and logistics.”

The chamber said the budget contains positive measures aimed at enhancing competitiveness, and external sector resilience, while presenting opportunities for focus on sectors that can accelerate growth.

“A number of the key structural reforms identified in last year’s Budget have been carried forward and strengthened, providing greater certainty and predictability to businesses and investors.

“These include the continued implementation of the Trade National Single Window (TNSW), the phased removal of para-tariffs, the rollout of the Digital ID framework, efforts to expand market access through new Free Trade Agreements (FTAs), the strengthening of one-stop-shop investment facilitation mechanisms, progress on Customs reforms, the expansion of Bandaranaike International Airport (BIA), enhanced financing support for SMEs, and reforms relating to the management of State-Owned Enterprises.”

The CCC said that more than 20 proposals submitted by it have been reflected in Budget 2027.

These include measures to strengthen investor facilitation through the establishment of a professionally managed investment promotion agency; continued efforts to improve trade facilitation and export competitiveness; the Government’s consideration of a successor programme with the International Monetary Fund (IMF); accelerated progress on key legislative reforms; the expansion of digital government services; and the promotion of cashless payments and broader digital adoption. The Budget has also captured several priorities relating to energy security, including the accelerated deployment of Battery Energy Storage Systems (BESS) and investments in fuel storage infrastructure, initiatives to optimize underutilized agricultural land, measures to support the expansion of the digital economy and the IT/BPO sector, and tax reforms to support exporters, including the acceptance of newly VAT-registered exporters as eligible exporters.

“The inclusion of these priorities reflects the value of sustained public-private dialogue and demonstrates increasing alignment between national policy objectives and the needs of a competitive, export-oriented economy.

“The priority now must be effective and timely implementation to translate policy commitments into investment, competitiveness, exports and sustainable growth.” (Colombo/Nov13/2026)