The Sri Lankan banking sector, which has an asset base of over Rs.5,000 billion and accounts for 55% of the total assets of the financial sector, is lagging behind in providing loans and advances over five years, against regional and non-regional counterparts, said a top official of the International Monitory Fund (IMF), urging the sector to address the relative lack of long-term finance in the market.

“Based on the 2010 data, loans and advances over five years and above as a percentage of the total asset base of the banking sector is a paltry 0.2 percent and I do not think it is a good indication.

In the higher end of the spectrum, countries such as Philippines, Czech Republic and Poland maintain this ratio at 1.8%, 1.4% and 0.7%, respectively,” said IMF Resident Representative for Sri Lanka and the Maldives, Dr. Koshy Mathai.

Addressing a packed house of company directors and CEOs in Colombo at the fifth Bank Directors’ Symposium, he attributed this to rather a regional phenomenon and cited countries such as India, Bangladesh, Pakistan and Indonesia, which stand below Sri Lanka.

“The problem has aggravated predominantly due to the undeveloped state of the corporate bond market and the stock market, which has a market capitalization of 20 percent of the GDP and the average daily turnover of just below 1 percent of the market capitalization. This demonstrates the very low volumes traded,” he remarked.

Based on the 2009 data, Sri Lanka’s corporate bonds issuance as a percentage of the GDP is negligible (1%), while countries such as India (5%), Mexico (18%), Thailand (21%), Chile (22%), China (23%) and Brazil (26%) demonstrating relatively larger markets and the highest of 50% by Malaysia. Ironically, Philippines too shares the same club as Sri Lanka in this sphere with a just above 1 percent.

“The problem is Sri Lanka has neither,” he amused.

Budget 2013 proposed to exempt the withholding tax on interest income earned from investing in bonds and debentures listed on the Colombo Stock Exchange, with effect from January 1, with the objective of developing the corporate debt market.