Banking sector forges ahead of challenges
The letters of credit backlog has been cleared and inward remittances from migrant workers are firming up in the banking sector but prohibitive interest rates will jack up non-performing loans and block new projects and general business growth, analysts say.
“The letters of credit backlog has been cleared. We are also seeing a modest month-on-month improvement in inward remittances,”
a senior banker told the Business Times on Thursday.
He said that in the next quarter the industry is expecting an increase in non-performing loans (NPL). “The dollar liquidity is improving but we are expecting impairments.”
The CEO of a large a large bank said that the industry is bracing for NPL from construction and renewable energy sectors. “With the Ceylon Electricity Board (CEB) increasing electricity tariffs, we are expecting the renewable energy companies to be paid by the CEB. It is a big if but we are hopeful,” the CEO said.
The renewable energy companies have not been paid by the CEB for the last 10 months. This has racked up the loans at the banks.
Bankers are not expecting the tourism moratoriums extended after December. “”We will have to take a big hit if it isn’t extended. But the result will be similar even if it is extended as many cannot pay till there is a substantial improvement in tourism,” a second CEO added.
Inward remittances are improving but it is well below what it is supposed to be, analysts say.
They point out that more and more people are migrating and those who have left the shores recently would send money through formal channels. However that is still not shown in the system.
Bankers are also fearful of the International Monetary Fund- recommended haircuts. “Our capital will come under pressure if the local debt is restructured,” the second CEO added.
Bankers also say that the rising interest rates have brought in fresh lots of money from the upper middle class market in deposits. “For the past few months we are witnessing substantial amounts of deposits being fetched for the high interest rates,” the first CEO said.
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