Sri Lanka

Sri Lanka’s proposed government debt restructuring plan should reduce funding and liquidity risk for non-bank financial institutions (NBFIs), says Fitch Ratings.The plan avoids direct impact on the local-currency government debt holdings of NBFIs and commercial banks, easing uncertainty over the entities’ capital, funding and liquidity profiles.

Nonetheless, the proposal is only one aspect of the sovereign’s debt sustainability plan, and the weak economic environment continues to pose downside risk to the sector.The government debt holdings of Sri Lankan NBFIs mainly comprise local-currency treasury securities to meet regulatory liquid-asset requirements and for investment returns.

Finance and leasing companies (FLCs) have boosted government debt securities holdings amid a weak economic outlook, lacklustre lending opportunities and a preference for stronger liquidity buffers at a time of extreme market uncertainty.Such holdings are not excessive, at around 8% of sector assets at end-March 2023 (end-March 2020: 5%), but any direct impact from a government restructuring plan would have added to asset quality and earnings pressure arising from Sri Lanka’s difficult economic backdrop.

These securities also comprise a larger proportion of banking-sector assets, and any losses arising from a restructuring could have further constrained banks’ capacity and willingness to provide funding to the NBFI sector.

Foreign-currency denominated Sri Lanka Development Bonds will be subject to restructuring, but Fitch-rated NBFIs have no exposure to these instruments.“We also do not expect the latest proposal to prompt a loss of depositor confidence in the banking system that would raise contagion risk for NBFIs’ deposits and bank funding lines.

For more analysis on the implications for the banking sector, see Sri Lanka’s Domestic Debt Plan a Significant Step for Resolving Bank Uncertainty.”Fitch views the funding and liquidity profiles of Sri Lankan NBFIs as closely linked to that of banks, given the NBFIs’ dependence on banks as a funding source.

FLCs sourced approximately 73% of total non-deposit funding from other financial institutions as at end-March 2023, of which the bulk would be from banks.

Similarly, banks are major funding providers for other NBFI sub-sectors, such as securities firms.

FLCs’ credit drivers are also linked to those of banks due to their bank-like business models, common prudential regulator and predominant domestic exposure.Sri Lankan NBFIs continue to face significant downside risks beyond those addressed in the recent proposal.

The economy contracted by 11.5% in 1Q23, pressuring the FLC sectors’ already-high non-performing loan ratio of 16% as at end-March 2023, while higher funding costs have crimped net interest margins and profitability.

Fitch Ratings says it expects economic conditions to remain difficult, particularly for FLCs’ largely sub-prime customer base, despite a modest improvement in inflation, interest rate and exchange rate trends in recent weeks.Capital markets are likely to stay volatile despite recent positive moves, keeping the financial prospects of securities firms less predictable in the near term.

Any resistance from other government debt holders could also hold back the proposal and raise fresh doubts for the domestic financial system.The debt announcement and subsequent sovereign rating action do not directly impact Fitch’s national ratings on Sri Lankan NBFIs.

The ratings remain on Rating Watch Negative (RWN) due to ongoing operating environment risks, which could weaken NBFIs’ credit profiles relative to other entities on the national ratings scale.

Fitch Ratings says it would look to resolve the RWNs upon greater stability in the domestic economy and financial markets, and better visibility on how the economic downturn will affect NBFIs’ franchises and financial profiles.

This could require more clarity on the final outcome of the debt restructuring, including on foreign-currency debt, and the impact on the banking and corporate sectors.





Unlimited Portal Access + Monthly Magazine - 12 issues-Publication from Jan 2021


Buy Our Merchandise (Peace Series)

 


Contribute US to Start Broadcasting



It's Voluntary! Take care of your Family, Friends and People around You First and later think about us. Its Fine if you dont wish to contribute and if you wish to contribute then think about the Homeless first and Feed them. We can survive with your wishes too :-). You can Buy our Merchandise too which are of the finest quality.

Debit/Credit/UPI

UPI/Debit/Credit

Paytm


STRIPE


[Sri Lanka] - Sri Lanka, China sign 9 agreements on cooperation


Police open fire at group of robbers; one person dead


[Sri Lanka] - New liver care center of Ragama Teaching Hospital inaugurated


Sri Lanka anticipating private equity deals amounting to $250mn


Indian HC organizes conference to explore potential of digital public infrastructure for Sri Lanka


School education will be revamped by minimizing problem of assessments - President


[Sri Lanka] - Chinese premier holds talks with Sri Lankan PM; explore cooperation in tidy energy and telecom


Heat advisory provided for numerous provinces, districts


[Sri Lanka] - ACC reveals Women s Asia Cup 2024 in Sri Lanka


[Sri Lanka] - Sri Lanka to promote registration of ships under its flag


Court dismisses initial objections raised in Keheliya s misappropriation case


Five-member SC bench to hear petitions challenging Online Safety Act


Major US bridge collapses after being hit by Colombo-bound ship


[Sri Lanka] - CBSL guv discusses why Parate Law suspension bad for credit supply


[Sri Lanka] - Unique security plans for Good Friday and Easter Sunday


National minimum month-to-month wage to be increased by Rs. 5,000


Investigation ordered into assassination attempt on Magistrate Thilina Gamage


Veteran singer Chandra Kumara Kandanarachchi passes away


T-56 firearm reported missing from Wilgamuwa police station


Govt. to provide 10kg of rice to low-income families before Avurudu


Sri Lanka Central Bank further reduces policy rates


UN Security Council demands immediate ceasefire in Gaza after US abstains


Heavy showers anticipated in parts of the island


Sri Lanka s Chief of Defence Staff visits Kenya s Defence HQ


COPA instructs officials to instantly report importation of 102 spoiled fish containers to CID


Govt prioritizing overhaul of school education and exam systems - President


Buddha Sasana Ministry problems declaration over New Year auspicious times


Three injured in luxury bus accident on Kandy-Mahiyanganaya road


Heavy showers above 100mm expected in several areas tomorrow


Ex-President Maithripala leaves CID after tape-recording statement


Appeals Court quashes findings, suggestions of political victimisation commission


HC to deliver order on Keheliya s revision petition seeking bail


UN chief says there is growing consensus to tell Israel that a ceasefire is needed


Nine students hospitalized after clash at private education institute


5 including two students arrested for taking laptop computers from school s wise class


Cost of a cup of milk tea decreased


Sri Lankan PM arrives in China for official visit


Excise revenue up by 38.5% in February 2024


President reveals rapid development plans for overlooked Mahaweli A and B zones


Bandula s US tour cut short for no-confidence vote against Speaker


IMF representatives meet with Sajith Premadasa


Third day of argument on no-confidence motion against Speaker starts


[Sri Lanka] - Sri Lanka to begin speak with restructure bonds next week - report


15 consisting of schoolchildren injured in bus accident in Wellawaya


[Sri Lanka] - 19 suspects straight connected to the underworld arrested so far - Police


Underworld gunman injured in shootout with STF succumbs to injuries


A modification in dominating dry climate condition expected from today


Underworld gunman and STF member injured in shootout at Ganemulla


[Sri Lanka] - COPE assembles under Rohitha s chairmanship amidst string of member resignations


[Sri Lanka] - President Ranil reveals vision for rapid transformation into export economy


Intermittent fasting linked to high risk of cardiovascular death, study reveals


BIA records sharp increase, serving 850,000 travellers this year AASL Chairman


Vietnam s president resigns after just over a year in office


[Sri Lanka] - Update on Sri Lankans in Haiti amidst escalation of violence


33 including FSP s Duminda Nagamuwa and Lahiru Weerasekara arrested during protest


COPF recommends deferment of CBSL salary increase


Tear gas and water cannons fired at protesters in Pettah





68