Sunday, 16 May 2021 22:25

Sri Lanka Banks face headwinds in Covid-19 third wave Featured

Sri Lanka’s Banks are now facing headwinds in returning to normalcy levels following the third wave Covid -19 impact which cannot be over come any out of the box thinking or efforts, banking sector experts warned.

They noted that they expect this unpredictable trend triggered by short sighted policies to continue in to 2021 at a deadly but much slower pace making it difficult to forecast repercussions,. . .

Deteriorating asset quality and the associated higher credit costs are expected to keep banks’ profitability lower in 2021 than pre-2019 levels, despite improvement from 2020 profitability, intentional financial agencies claimed

These agencies predicted that slow economic activity, external and domestic vulnerabilities, subdued private credit growth and the sovereign’s weakened credit profile to inflict significant downside risks to the operating environment of Sri Lankan banks.

Local banks’ impaired loan ratios have been rising despite the spate of relief measures announced by the Central Bank for borrowers as well as banks in terms of bad loan recognition, it said. \

The third wave COVID-19 ak has adversely impacted the income and earning capacity of borrowers affecting their ability to service their debt obligations to banks.

Further, the creditworthiness of certain borrowers may deteriorate in the long term, and accordingly, the credit quality of the banking sector will depend on the nature and pace of economic recovery.

Therefore, it is difficult for banks to fully assess the impact of the COVID-19 outbreak on loan classification, expected credit losses, provisioning, credit risk weightings, and capital, several CFOs of leading commercial banks said.

The government and regulatory authorities have mandated, encouraged, or granted payment holidays and debt moratoria to borrowers under which repayments of interest and principal are delayed creating a potential adverse impact on the cash flows and liquidity positions of banks.

 

 

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