Sri Lanka banks assured of stability in debt restructure

Sri Lanka
By Editor_1

COLOMBO – Sri Lanka’s banks said assurances has been received that the stability of the sector cannot be risked in a planned domestic debt overhaul, to make the defaulted debt sustainable under a program with the International Monetary Fund (IMF).

…”[T]he Central Bank of Sri Lanka (CBSL) has assured the banks that the regulatory stance in the on-going Domestic Debt Optimization (DDO) discussions with the diverse stakeholders will be that, the banking sector stability cannot be put at risk,” Sri Lanka Bank’s Association (SLBA) said in a statement.

“The capital and liquidity of the banks need to be maintained sufficient to support the growth of the economy post-debt restructuring, together with other necessary measures to bring the Balance of Payments and Fiscal deficit into a sensible equilibrium,” the statement said adding that at present the banking section was well capitalized with average Capital Adequacy Ratio over 15% and a Liquidity Coverage Ratio of 200%.

“The imperative remains to be that, this position is not weakened,” it said.

On May 1, the banks issued a statement seeking clarity on a planned debt re-structuring, ahead of an overall debt restructuring plan due to be announced later this month.

“The challenges that the economy and the banking system could face in the period ahead if the envisaged Balance of Payments and Fiscal Reforms are delayed or derailed are significant for the economy and the banks,” the statement said, adding that the SLBA therefore take comfort from CBSL’s assurance.

The SLBA statement in full:

The Sri Lanka Banks Association (Guarantee) Ltd (SLBA) is relieved to note that the apex regulator of the banking industry, the Central Bank of Sri Lanka (CBSL) has assured the banks that the regulatory stance in the on-going Domestic Debt Optimization (DDO) discussions with the diverse stakeholders will be that, the banking sector stability cannot be put at risk.

The capital and liquidity of the banks need to be maintained sufficient to support the growth of the economy post-debt restructuring, together with other necessary measures to bring the Balance of Payments and Fiscal deficit into a sensible equilibrium. Presently the banking sector is well capitalized with average Capital Adequacy Ratio over 15% and a Liquidity Coverage Ratio of 200%. The imperative remains to be that, this position is not weakened.

We appreciate the long and arduous effort by CBSL leading up to the finalization of the Extended Fund Facility (EFF) from the International Monetary Fund (IMF). This has contributed to improvement of market sentiment and economic outlook for the rest of the year. The hard policy measures taken by CBSL to create the conditions for facilitating the ongoing disinflation process and to restore stability to the economy must also be recognized.

The challenges that the economy and the banking system could face in the period ahead if the envisaged Balance of Payments and Fiscal Reforms are delayed or derailed are significant for the economy and the banks. We therefore take comfort from CBSL’s assurance.

At the launch of the IMF Regional Economic Outlook on Asia and Pacific Press Briefing in Hong Kong Krishna Srinivasan, Director, Asia and Pacific Department, noted that; when you restructure domestic debt, you have to make sure that you also safeguard financial ‘system’ stability. This thinking adds comfort to the banks at this time.

-economynext.com/ENCL

Editor_1
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