Banks to face continued asset quality pressures in 2022: Fitch

Rating agency Fitch in its latest commentary said local banks are expected to face continued asset quality pressures in 2022.

Challenges will continue to be faced given that Sri Lanka experiences rising macroeconomic stresses stemming from the sovereign credit profile. This will pose a threat to borrowers' repayment capacity, alongside the conclusion of most relief measures in 2021, Fitch Ratings said.

The agency expected the economic performance of the country to weaken this year, where growth is forecasted to slow down to 2 percent. However, downside risks to forecasts remain.

Fitch Ratings said that Stage 3 loans are likely to increase in 2022 but a sharp rise in the ratio may not be apparent due to robust loan growth.

Credit costs are also likely to remain high, although below 2021.