Banking

Sri Lanka’s State Mortgage and Investment Bank [SL]BBB+ rating confirmed: ICRA

Sunday January 3, 2021 1:28 pm

ECONOMYNEXT – ICRA Lanka said it was confirming a domestic [SL]BBB+ rating of State Mortgage and Investment Bank, a state-run housing lender amid a spike in non-performing loans.

SMIB’s bad loans, not counting loans issued against Employees Provident Fund balances, had risen to 9.23 percent by June 2020 from 7.73 percent and was above the licensed specialized bank average of 7.08 percent.

By June 2020, a gross NPL ratio of 73.89 percent was recorded on EPF backed loans. Many customers do not pay EPF loans and they are recovered from their account balances. About 98 percent of the loans are recovered, ICRA said.

The Non-EPF NPA portfolio accounted for 35.04% of the total NPA portfolio and it reported a gross NPA of 9.23% in Jun-20 as compared to 7.73% in Dec-19 and 7.31% in Dec-18.

“The effects of the Covid-19 pandemic was main reason for increase in NPA of the non-EPF portfolio,” ICRA said.

“The Bank granted moratorium to 65% of its portfolio as in Jun-20. Going forward, the Bank’s ability to maintain these facilities as regular facilities would be a key monitorable.”

The Bank’s Tier I capital adequacy ratios (CAR) was 18.56 percent and Total capital adequacy ratios was 19.30 percent against a regulatory requirement of 8.0 percent and 12.0 percent.

SMIB;s minimum core capital was 5,075 million rupees and it had to be enhanced to 7.5 billion by December 2022 with the injection of about 1.6 billion rupees.

ICRA said it expected the government to provide the funds.

The full statement is reproduced below:

ICRA Lanka reaffirms the issuer rating of State Mortgage and Investment Bank

Rating action

ICRA Lanka Limited has reaffirmed the issuer rating of [SL]BBB+ (pronounced S L Triple B plus) with Stable outlook for State Mortgage & Investment Bank (SMIB or the Bank).

Rationale

The rating factors in SMIB being a 100% Government of Sri Lanka (GoSL) owned Bank, comfortable capital profile and moderate profitability.

The Bank’s Tier I and Total capital adequacy ratios (CAR) are comfortable at 18.56% and 19.30%, respectively as of Jun-20 as compared to the regulatory requirement of 8.0% and 12.0%, respectively.
The Bank’s minimum core capital remained at LKR 5,075 Mn (excluding the LKR 419 Mn profit for CY2019) as of Jun-20 and it needs to be enhanced to LKR 7.5 Bn by Dec-22 to meet the minimum core capital requirement applicable for Licensed Specialised Banks (LSBs).

ICRA Lanka estimates that the Bank would need capital infusion of about LKR 1.6 Bn to meet the regulatory requirement as the internal generation is likely to remain modest. ICRA Lanka expects timely and adequate capital support from the GoSL to meet the capital requirement.

The rating considers SMIB’s moderate profitability with Return on Assets (RoA) and Return on Equity (RoE) of 1.05% and 6.43%, respectively in H1CY2020 as compared to the LSBs sector average of 0.63% and 11.22%, respectively.

ICRA Lanka also notes the bank’s weak asset quality profile as the gross NPA ratio, excluding Employees’ Provident Fund (EPF) backed loans increased to 9.23% as of Jun-20 from 7.73% as of Dec-19 (7.31% as of Dec-18) and remained above LSBs sector average of 7.08% in Jun-20.

Outlook: Stable

The Stable outlook reflects high likelihood of adequate and timely capital support from the GoSL given its 100% ownership of SMIB. The outlook may be revised to “Positive” in case of a steady improvement in its asset quality and profitability indicators. The outlook may be revised to “Negative” in case of a further weakening of asset quality, overall financial risk profile or in case of lower than expected support from the GoSL, specially in meeting the minimum capital requirement on a timely basis.

Key rating drivers

Credit strengths

100% government ownership; SMIB is a 100% GoSL owned LSB, and the Bank has received financial and managerial support from GoSL in the past. The GoSL is represented by three government administrative officers on SMIB’s Board from the Ministries of Finance, Housing and Agriculture. GoSL also infused capital of LKR 250 Mn in 2016 by converting a loan granted by it in the past. ICRA Lanka therefore expects timely support from the GoSL, especially in meeting SMIB’s core capital requirement of LKR 7.5 Bn by December 2022.

Comfortable capital profile; sizeable capital required for meeting minimum regulatory core capital in Dec-22; SMIB has comfortable capital adequacy ratios largely supported by its exposures to EPF loans and mortgage loans (21% and 27%, respectively of the total loans as of Jun-20) which have lower risk weights of 0% and 50%, respectively. The Bank’s Tier I and total CAR stood at 18.56% and 19.30% respectively as of Jun-20, comfortably above the regulatory threshold of 8.0% and 12.0%.

SMIB’s core capital was LKR 5,075 Mn in Jun-20 (excluding the LKR 419 Mn unaudited profit for CY2019) which was above the minimum requirement of LKR 5 Bn. As per ICRA Lanka’s estimation, the Bank would require capital support of about LKR 1.6 Bn (27% of the net worth as in Jun-20), assuming 15-25% growth in the risk weighted assets (RWAs), to meet the LKR 7.5 Bn core capital by Dec-22, as its internal generation is expected to remain moderate. However, timely capital support from the GoSL is envisaged to meet the above minimum regulatory requirement.

Credit challenges

Moderate scale of operations; SMIB is a moderate sized LSB with a total asset base of LKR 51.3 Bn and branch network of 24 as of Jun-20. The Bank offers personal loans, mortgage loans and EPF backed loans which accounted for 47%, 27% and 21%, respectively of its LKR 35.3 Bn portfolio as of Jun-20. ICRA Lanka takes note of the increase in the share of non-fixed collateral backed loans in the overall portfolio, as the share of personal loans has stood at 47% as of Jun-20 (45% in Dec-19). However, the granular portfolio and low credit concentration, with top 10 loans accounting for about 1% of the total portfolio as of Jun-20, provides some comfort. As the Bank expands its lending portfolio and diversifies to newer products with large ticket sizes namely Business loans, the concentration risk of the portfolio is expected to increase going forward. However, SMIB’s ability to maintain a granular portfolio and improve the credit quality of the non-fixed collateral back portfolio would be key monitorable.

Weak asset quality indicators; The Bank’s gross NPA ratio stood at 21.73% as of Jun-20 as compared to 21.21% in Dec-19 and 21.75% in Dec-18. EPF loans contribute significantly for the overall high NPA’s, as most borrowers expect the Bank to recover loan liabilities out of EPF balances.

Historically, SMIB recorded lower NPAs during the second quarter of the year as the claims for the previous year’s over dues on EPF backed loans are paid during this period by the EPF division of CBSL.

As of Jun-20, 64.96% of the NPA portfolio was EPF loans and it reported a gross NPA ratio of 73.89% as compared to 73.56% in Dec-19 and 70.96% in Dec-18. However, the recovery from the EPF loans from the EPF division of CBSL remained high at 98% in FY2019.

The Non-EPF NPA portfolio accounted for 35.04% of the total NPA portfolio and it reported a gross NPA of 9.23% in Jun-20 as compared to 7.73% in Dec-19 and 7.31% in Dec-18. The effects of the Covid-19 pandemic was main reason for increase in NPA of the non-EPF portfolio. The Bank granted moratorium to 65% of its portfolio as in Jun-20. Going forward, the Bank’s ability to maintain these facilities as regular facilities would be a key monitorable.

Moderate liquidity and concentrated funding profiles; SMIB’s asset and liability maturity (ALM) profile is characterized by significant negative cumulative mismatches in the less than 1-year bucket (36.21% of total assets as of Jun-20), as the majority of its borrowings are short-term compared to the long-term nature of its lending portfolio.

ICRA Lanka notes the healthy deposit renewal rates of about 80-90% and availability of LKR 2.8 Bn contingent funding lines. SMIB’s liquid asset ratio stood at about 36.11% as of Jun-20 comfortably above the threshold of 20%. While the liquidity coverage ratio (LCR) was at 108% as of Jun-20, above the regulatory threshold of 90%.

The Bank’s total funding stood at LKR 43.9 Bn and 97% of it was deposits (89% FDs, 5% savings and 3% special scheme deposits) as of Jun-20, while borrowings from banks and refinance loans accounted for the rest. SMIB’s savings deposits as a proportion of total deposits stood low at about 4.81% as of Jun-20 against LSBs average of about 22.91%, largely because of the limited franchise of the Bank.

Moderate profitability indicators; SMIB’s RoA and RoE remained moderate during H1CY2020 at 0.75% and 6.43%, respectively as compared to the LSBs sector average of 0.63% and 11.22%, respectively. The Bank’s net interest margins (NIMs) moderated to about 3.77% in H1CY2020 as compared to 4.52% in CY2019 and 4.60% in CY2018. The moderation was due to concessionary interest rates offered to the customers during Mar-20 to Jun-20 under the moratorium. The credit cost increased due to the effects of the Covid-19 pandemic to 0.40% in H1CY2020 as compared to 0.29% in CY2019 and 0.44% in CY2018. Operating expenses (as a proportion of total assets) moderated to 2.46% in H1CY2020 as compared to 3.43% in CY2019 and 3.39%in CY2018. Cost to income ratio moderated to about 63% as compared to 71% in CY2019 and 68% in CY2018. This was due to limited operations carried out during the 3 months long lockdown period. Going forward, it is crucial for SMIB to further improve its operating efficiencies and keep credit costs under control.

Analytical approach: For arriving at the rating, ICRA Lanka has applied its rating methodologies as indicated below. Links to applicable criteria: ICRA Lanka’s Credit Rating Methodology for Banks
About the Bank:

The State Mortgage & Investment Bank is a 100% GoSL owned, Licensed Specialized Bank operating with 25 branches. SMIB is one of the five entities in Sri Lanka to offer EPF backed loans. Apart from the above, the Bank also offers mortgage backed housing loans, personal loans and leasing facilities to its customers. It commenced operations as the Ceylon State Mortgage Bank (CSMB) in December 1931. SMIB was formed by the State Mortgage & Investment Bank Act No. 13 of 1975, amalgamating CSMB and the Agricultural and Industrial Credit Corporation and commenced its operations from January 1979. In April 1998, the Bank was granted the license to operate as a licensed specialized bank by the CBSL.

In CY2019, SMIB reported profit after tax (PAT) of LKR 419 Mn (LKR 245 Mn in CY2018) on a total asset base of LKR 47.3 Bn as of Dec-19 (LKR 42.6 Bn as of Dec-18). For the six months ended Jun-20, the Bank reported a PAT of LKR 185 Mn (un-audited) on a total asset base of LKR 51.3 Bn.

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)