Banks at ease as Central Bank gives fresh assurance acknowledging sector stability cannot be risked

After raising concerns and seeking clarity on the proposed Domestic Debt Optimisation (DDO), the Sri Lanka Banks Association (SLBA) yesterday said the priority of the banking sector is being reaffirmed in the upcoming debt restructuring process. 

The Central Bank has addressed the concerns of the local banking sector and, according to SLBA, it has provided assurance that the regulatory stance in the ongoing DDO discussions with diverse stakeholders will be that, “the banking sector stability cannot be put at risk”.
In a statement to the media, the SLBA said it is “relieved” with the 
assurance provided.

“The capital and liquidity of banks need to be maintained sufficiently to support the growth of the economy post-debt restructuring, together with other necessary measures to bring the Balance of Payments and Fiscal deficit into a sensible equilibrium. 
Presently the banking sector is well capitalised with an average Capital Adequacy Ratio of over 15 percent and a Liquidity Coverage Ratio of 200 percent. The imperative remains that this position is not weakened,” SLBA said in its statement.

Last week, SLBA expressed dissatisfaction with the authorities failing to be transparent with regard to the the proposed DDO. Its membership sought clarity on what the authorities meant by “voluntary” debt optimisation.
In the latest statement, the SLBA said its membership appreciates the long and arduous effort by the Central Bank leading up to the finalisation of the Extended Fund Facility (EFF) from the International Monetary Fund (IMF), which has contributed to the improvement of market sentiment and economic outlook for the rest of the year. 
It added that the hard policy measures taken by the Central Bank to create the conditions for facilitating the ongoing disinflation process and to restore stability to the economy must also be recognised.

“The challenges that the economy and the banking system could face in the period ahead if the envisaged Balance of Payments and Fiscal Reforms are delayed or derailed are significant for the economy and the banks. We, therefore, take comfort from CBSL’s assurance,” SLBA noted.