Loans under moratoria down over 10% by 2021-end

The loans and leases under payment holidays fell below 10 percent in most banks and below 15 percent in a couple of others by 2021, when the broad-based moratoria scheme came to an end, except for the tourism sector, which prevails through June 30, 2022. 

There was some anxiety building among the banks and in the financial sector as to the extent of the fallout in asset quality, due to the soaring interest rates and worsening macroeconomic conditions, when a section of the borrowers entered 2022 with the expiry of their payment holidays, most of which continued from April 2020 onwards. 

However, except in the case of National Development Bank (NDB) and Nations Trust Bank (NTB), others had single-digit percentages as shares of their loan portfolios as loans under moratoria by 2021-end. 
NDB had 14 percent of its loans and advances under moratoria while NTB had 10 percent of its loans under moratoria, according to the two banks’ annual reports data parsed by Advocata Research, a Colombo-based think tank propagating free market ideas.  

However, the data was either unavailable or could not be located at the time the study was made public in relation to the loans under moratoria at People’s Bank and DFCC Bank. 

The study was carried out by Advocata, taking 11 local licensed commercial banks out of 13, to specifically look into how far these banks are capable of withstanding the impact on their capital buffers, should both the International Sovereign Bonds (ISBs) as well as Sri Lanka Development Bonds (SLDBs) are restructured as part of the foreign debt restructuring announced by the government on April 12. 

The Central Bank however maintains that the SLDBs would not be subject to restructuring and so are the swaps. 
While these banks or at least most of these banks appear to be maintaining their capital adequacy ratios above their regulatory minimums under 20 percent or 30 percent haircuts on both ISBs and SLDBs, the capital ratios of at least a half of the banks under watch fall below their minimum required levels when the haircut is raised to 50 percent levels. 

Acuity Stockbrokers also showed in a similar study carried out on select three banks that they would be able to withstand the capital pressure under the worst-case scenario, where even the rupee bonds are subjected to restructuring. 

“We find that the majority of banking stocks within our coverage are capitalised sufficiently to absorb a reasonable level of provisioning for ISBs and SLDBs, which reduces the likelihood that the banks would need to raise additional regulatory capital in the short term,” Acuity Stockbrokers said.