Lankapage Logo CP 19 YEARS
Go Home Home Serving the Sri Lankan community globally since 2000
go to LankaPage.com

Leading News from Sri Lanka::

* Moody's says Sri Lankan banking system outlook is negative, as macroeconomic risks persist
Wed, Sep 5, 2018, 09:57 pm SL Time, ColomboPage News Desk, Sri Lanka.

Sept 05, Colombo: Moody's Investors Service says that the outlook for Sri Lanka's banking system is negative, as the economy remains weak and asset quality is deteriorating.

"The economy will only exhibit a modest rebound as the government's high debt burden and reliance on foreign borrowings continue to limit public investment and pose the risk of capital outflows," says Tengfu Li, a Moody's Analyst.

"Credit growth was very high over the last two years, with the credit multiplier (credit growth/GDP growth) peaking at more than 2.5 times. As loans disbursed over this period begin to mature, asset quality will deteriorate, and higher borrowing costs due to tighter monetary policy implemented earlier will add to the debt burden of corporates," says Li.

Moody's conclusions are contained in its just-released "Banking System Outlook: Sri Lankan banks, Macroeconomic risks and deteriorating asset quality drive negative outlook". The outlook expresses Moody's expectation of how bank creditworthiness will evolve in this system over the next 12 to 18 months.

With the key drivers, Moody's assesses the operating environment as stable; asset risk as deteriorating; capital as stable; profitability and efficiency as stable; funding and liquidity as stable; and government support as deteriorating.

Moody's notes that capital has strengthened as the banks successfully raised capital and reduced cash dividends to comply with their Basel III requirements.

While the transition to SLFRS 9 will substantially increase loan provisions, the capital impact is likely to be limited as the regulator allows provisions to be staggered over a prescribed period. Profitability supported by interest income growth will offset the increase in credit costs.

Funding pressure on the banks will improve with the recent slowdown in loan growth. Sri Lankan banks hold sizeable liquid assets to cover their liquidity needs and movements in deposits, thereby providing adequate buffer.

Last but not least, a high debt burden and contingent liabilities relating to state-owned enterprises will continue to limit the government's capacity to support the banks.

 

ColomboPage - Recent 10 Stories ::
Registration for awareness sessions regarding implementation of trade policy and proposed Free Trade Agreements
-- [3 hours ago]
Media reports saying IGP is asked to resign are false - government
National Mosquito Control Week from September 26
CID ordered to expedite investigations into national rugby player Thajudeen's killing
Sri Lanka's former president Chandrika Kumaratunga awarded France's highest national honor
Climate change could hurt Sri Lanka's economy and living standards, World Bank warns
ADB approves $10 million technical assistance loan to improve urban projects in Sri Lanka
Sri Lanka Health Minister to leave for New York and Geneva to attend international conferences on NCDs and tobacco control
Millennium Challenge Corporation official visits Sri Lanka to continue progress on Compact
Screening of Indian film 'Chak de India' in Colombo

Copyright © 2000, 2016 by LankaPage.com (LLC) :
The news and other contents on ColomboPage are copyrighted property of LankaPage.com, LLC. Any unauthorized use of any information on ColomboPage may constitute a violation of copyright laws. You need written permission to reproduce, republish, post, transmit, broadcast or distribute, material from this site from LankaPage.com, LLC. However, news organizations or broadcasters in Sri Lanka may republish the news items in ColomboPage with proper acknowledgment to ColomboPage.