Credit-impaired loans in the banking sector increase alarmingly

Stage 3 loans which are creditimpaired loans in the banking sector have increased to 10 per cent from 4 per cent last year.

Aruni Gunathilake, Chairperson of Hatton National Bank said that if the banks don't get paid, the hike impairment in the dollar bonds will hit the capital of these institutions.

Noting that the industry has seen a substantial increase in non-performing loans, she told a business forum organised by the Ceylon Chamber of Commerce that this unsustainable debt brings big challenges on the impairment front. “Credit risk is real.”

She pointed out that the banks need to maintain their strength to support businesses. “Already, banks are raising tier two capital. But which investor will put money in a sector with a negative outlook and no returns?”

She also added that debt restructuring will hurt banks. “It will impair our dollar assets. If local debt restructuring happens, it will have a large impact.”

Unsustainable debt brings big challenges on the impairment front. “Credit risk is real.”

Sri Lanka’s banking sector will have to amortise this, over time to maintain stability in the sector, she said.

Noting that the country is seeing some bottoming out in terms of growth, and disinflation has started, Central Bank Governor Dr. Nandalal Weerasinghe was confident

that inflation will be a single digit by year end. He is also expecting to conclude debt re-structuring in about six months.

Fielding questions on tax increases implemented recently, he showed displeasure for those opposing the recent tax hikes noting that the last time tax cuts were given, the country ended up in a severe crisis.

Other international financing/ funding institutes will be willing to partner with Sri Lanka on its debt management unless they saw an IMF partnership materialise first, he added. He also said that it does not make any sense to bring the rates down without securing the IMF External Fund Facility.