Large state bank, small bank and finance firms hit by bad debt
View(s):Some Rs. 1 billion bad debt by a vehicle importer is being probed by authorities in a large state bank, highly placed sources said. They said that this amount is likely more than Rs. 1 billion and it’s unclear whether it’s an unsecured loan. They also said that a small commercial bank is also affected by the same importer by upto Rs. 150 million while a myriad of finance companies are also facing bad debts and payments by the same troubled importer.
The CID and other law enforcement authorities are probing these transactions, the sources added.
They said that certain finance companies managed to secure collateral from this person but some others are facing issues. He’s not in the island and is communicating through a power of attorney, the sources added.
They said that while the state entity is grappling with this issue, the small commercial bank is facing minimum capital requirement constraints slapped by the Central Bank starting 1, July 2017. The licensed banks in Sri Lanka need to adopt minimum capital standards based on the Direction issued by the regulator. This direction is in line with the Basel III guidelines issued by the bank for International Settlements (BIS) related to capital, leverage and liquidity in order to strengthen resilience of banks.
The sources said that with mandatory capital that financial institutions are required to hold in addition to other minimum capital requirements, the smaller banks will be challenged this year. The regulator will be issuing a consultation paper on the implementation of net stable funding ratio, a longer term structural ratio designed to address liquidity mismatches, they noted.
Analysts say that the top five hanks (HNB, Commercial, Seylan, Sampath and NDB) have cleared these thresholds. HNB for an example resorted to issue up to 70,082,228 new ordinary shares comprising 55,995,792 ordinary voting shares and 14,086,436 ordinary non-voting shares by way of a Rights Issue last year. The purpose of the share issue is to strengthen the capital base/balance sheet of the bank and to support the overall business growth of the bank, they said in an announcement to the Colombo Stock Exchange.
It is intended that small state owned banks will be consolidated to further strengthen their capital positions and to grow their balance sheets.
The Central Bank is assessing the Internal Capital Adequacy Assessments compiled by banks reflecting the capital position, risk management and business expansion over the medium term and will continue to monitor the implementation of the Basel III standards in banks.