Home » SL Banking Sector to stage a comeback with Rs. 450 bn recapitalization

SL Banking Sector to stage a comeback with Rs. 450 bn recapitalization


By: Staff Writer

Colombo (LNW): Sri Lanka’s banking sector is ready to come back from the present downfall in the economic crisis following the government’s capital infusion of Rs 450 billion under recapitalization initiative of Budget 2024, several general managers of leading banks said.

They noted that the government’s efforts to introduce new laws to strengthen the financial sector will be an impetus for the local banks.

To build additional capital accumulation, an amount of LKR 450bn is allocated to support the capital improvement process in the banking system according to the independent asset quality review supported by IMF.

It has also been proposed to divest 20% of the investment in the two large State Banks either to strategic investors or to the public.

The Banking Act will be amended in early 2024 in order to provide the legal framework to the reforms such as appointment of Chief Officers, State Bank Board Members and restrictions on individual borrowers of the state-owned banks.

The borrowing limits are to be increased to LKR 7,350bn to aid the bank recapitalization and external debt restructuring.

The Government is to introduce Public Debt Management Act, Public Financial Management Act, Public Asset Management Act, Public Enterprise Reform Law, Investment Law and Public Private Partnership Law.

A regulatory framework to facilitate the gig economy and e-commerce transactions including cross border transactions to cover the areas of payment system, fiscal revenue and employee welfare.

The Government has allocated LKR 450bn of taxpayers’ funds to recapitalize the state banks in the process of restructuring the State-Owned Enterprises’ debts.

Sri Lanka’s banking sector is now saddled with additional pressure from the ever increasing non-performing loans (NPLs) given to COVID-19 hit businesses and individuals under the government’s relief scheme, Finance Ministry data showed.

According to the data, a massive sum of Rs. 1.6 trillion with accumulated interest as at March 31 2023 has to be repaid to the local banking sector by business enterprises, SMEs and individuals, hit by COVID-19 and subsequent economic crisis.

It has been indicated that non-settled loans obtained by affected business owners and persons under concessionary terms in five stages now amounts to 15.65 per cent from the total debt stock.

The coronavirus outbreak coupled with economic crisis and the resultant prolonged business disruptions have made it impossible for borrowers to repay their loans given under the scheme resulting in the banks’ credit profiles on the down side, several general managers said.

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