ECONOMYNEXT – Sri Lanka’s private banks may not need government support based on latest financial results but the impact of state enterprise loans and sovereign bond restructuring still needs to be assessed, Deputy Central Bank Governor Yvette Fernando said.
The government allocated 450 billion rupees in the 2024 budget for bank recapitalization, based on a 2022 assets quality review, Fernando told an economic forum organized by the Asian Development Bank.
Sri Lanka’s banks have now been asked to re-evaluate capital needs.
Private banks are likely to meet capital requirements on their own without government support, leaving only state banks to use budget resources, she said.
Sri Lanka’s banks were hit by bad loans from Coronavirus pandemic and the currency crisis and default. Banks also had to provide for sovereign bond restructuring, though they were spared of rupee bond restructuring. As a result bond yields are now falling.
Domestic SOE debt restructuring of banks to be finalized very soon, she said. External debt restructuring also progressing,
The government has already taken over the dollar debt of Ceylon Petroleum Corporation of state banks, published data showed.
A part of the budget allocation could go for the restructuring.
The 2024 budget deficit was projected to go up to 9.1 percent of gross domestic product with about 1.5 percent of GDP earmarked for bank recaptilization. (Colombo/Apr04/2024)