Banking

Sri Lanka’s DFCC Bank downgraded to CCC+ after sovereign rating cut

Sunday January 3, 2021 12:54 pm

ECONOMYNEXT – Sri Lanka’s DFCC Bank has been downgraded to ‘CCC+’ from ‘B-‘ by Standard and Poor’s after an earlier cut in the sovereign rating with stable outlook.

The short term ratings was C.

“DFCC–like other banks in Sri Lanka–is highly exposed to the country’s economic conditions and
sovereign creditworthiness,” the rating agency said.

About 95 percent of DFCC’s loans are in Sri Lanka, with the central government accounting for 20 to 25 percent of the bank’s total credit risk exposures.

“We expect operating conditions for Sri Lankan financial institutions to remain tough amid subdued
economic activity globally post the COVID-19 pandemic,” S&P said.

“The sovereign’s weakening external and fiscal performance is adding to the challenge.”

Sri Lanka has already imposed import controls.

“Our ‘CCC+’ transfer and convertibility (T&C) assessment on Sri Lanka is a key factor in our analysis
of the country’s banking industry,” the rating agency said.

“The T&C assessment reflects our view of the likelihood of the sovereign restricting domestic entities’ access to foreign exchange needed to meet debt service obligations, including capital controls.

“So far, the government has restricted imports to reduce foreign currency outflows and used interest rate incentives for deposits to support foreign currency inflows. We believe any government actions to restrict foreign currency outflows could hurt banks’ ability to meet their obligations.

“For example, in a severe stress scenario, the government could implement deposit withdrawal limits and other capital controls if market sentiment turned more cautious.”

Though the cost of external funding is rising for Sri Lanka banks, domestic deposit growth was strong

“In our base case, we expect domestic deposit holders’ trust and confidence in the banking system to remain intact,” the rating agency sad.

“Deposit growth remained strong in the first nine months of 2020 at an annualized rate of 20 percent.

“With the sovereign’s deteriorating external financing conditions, investor confidence may weaken and the risk of funding or liquidity stress for banks may increase.

“Currently, we expect banks, especially the large ones, to continue to benefit from flight to quality.
Similar to other banks in the country, DFCC has grown its loan book, maintained regulatory
capitalization, and increased liquidity as a result of stimulus measures. ”

The full rating rational is reproduced below.

Rationale

We downgraded DFCC to reflect the bank’s high exposure to Sri Lanka’s deteriorating economic
and fiscal conditions. Our actions follow the lowering of our sovereign rating on Sri Lanka because
of the rising fiscal and external imbalances in the country. (See “Sri Lanka Downgraded To
‘CCC+/C’ On Increasing External Financing Risks And Fiscal Deterioration; Outlook Stable,”
published today on RatingsDirect).

DFCC–like other banks in Sri Lanka–is highly exposed to the country’s economic conditions and
sovereign creditworthiness. About 95% of DFCC’s loans are in Sri Lanka, with the central
government accounting for 20%-25% of the bank’s total credit risk exposures.

We expect operating conditions for Sri Lankan financial institutions to remain tough amid subdued
economic activity globally post the COVID-19 pandemic. The sovereign’s weakening external and
fiscal performance is adding to the challenge.

Sri Lankan financial institutions are unlikely to be immune to increasing credit pressures on the sovereign. This could hit the banking sector. We expect the sector’s nonperforming loans to rise to about 8.5% of total loans in 2021, from 5.3% as on Sept. 30, 2020, and 4.7% at end-2019.

The cost of external funding is rising for Sri Lankan banks. That said, they have limited reliance on
external funding compared to the sovereign.

Customer deposits remain the main source of funding for banks. In our base case, we expect domestic deposit holders’ trust and confidence in the banking system to remain intact. Deposit growth remained strong in the first nine months of 2020 at an annualized rate of 20%.

With the sovereign’s deteriorating external financing conditions, investor confidence may weaken and the risk of funding or liquidity stress for banks may increase.

Currently, we expect banks, especially the large ones, to continue to benefit from flight to quality.
Similar to other banks in the country, DFCC has grown its loan book, maintained regulatory
capitalization, and increased liquidity as a result of stimulus measures.

But earnings and asset quality remain under pressure. While COVID-related moratorium on loans and other regulatory policies have supported borrowers, we believe underlying economic conditions remain weak.

We lowered our risk-adjusted capital ratio forecast for DFCC to around 2.5% by Dec. 31, 2021,
from 3.0% previously, to reflect the heightened risks from the bank’s exposure to the sovereign.

The bank is vulnerable to and reliant on favorable operating conditions. Economic conditions and the sovereign’s ability to continue to service its debts are vital for DFCC’s creditworthiness. We revised the bank’s stand-alone credit profile (SACP) to ‘ccc+’ from ‘b-‘.

Our ‘CCC+’ transfer and convertibility (T&C) assessment on Sri Lanka is a key factor in our analysis
of the country’s banking industry. The T&C assessment reflects our view of the likelihood of the
sovereign restricting domestic entities’ access to foreign exchange needed to meet debt service
obligations, including capital controls.

So far, the government has restricted imports to reduce foreign currency outflows and used interest rate incentives for deposits to support foreign currency inflows. We believe any government actions to restrict foreign currency outflows could hurt banks’ ability to meet their obligations.

For example, in a severe stress scenario, the government could implement deposit withdrawal limits and other capital controls if market sentiment turned more cautious.

Outlook

Our stable outlook on DFCC mirrors that on Sri Lanka and reflects our view that the bank will
remain vulnerable and dependent upon favorable business, financial, and economic conditions to
meet its financial commitments.

In our view, COVID-19 has heightened key vulnerabilities at the sovereign level and across the banking system. We believe these systemic pressures will continue to undermine the bank’s creditworthiness, but don’t expect an immediate credit or payment crisis over the next 12 months.

Downside scenario

We could lower our ratings on DFCC if we take a similar action on Sri Lanka. The sovereign rating
could be lowered if external buffers decline substantially more than we currently forecast, or
access to external financing proves extremely difficult. (Colombo/Jan03/2021)

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)