Financial Times

ADB funds to revive People's Bank
The debt ridden People's Bank is gearing itself to transfer its non-performing loans to an asset management company (AMC) in the long term and plans to seek foreign donor support.

In a paper presented at the Sri Lanka Development Forum held last week in Kandy, Dr. Ranee Jayamaha, Deputy Governor, Central Bank said that People's Bank will transfer identified hard core non-performing loans (NPLs) to a Special Assets Division and later to an AMC.

"The bank has identified a capital shortfall of Rs. 8.5 billion and this is expected to be brought in on a staggered basis to meet the regulatory capital adequacy ratio," she said, adding that in the interim period, the NPLs will be transferred to the Special Assets Division.

She said with regard to the distressed asset resolution of the bank, action will be taken to obtain parliamentary approval for setting up the AMC in the 'near future' for which the bank will seek multilateral donor support. "The Asian Development Bank's assistance will greatly help to speed up the restructuring of People's Bank," she added.

An official said that the government will inject funds, given in tranches by the Asian Development Bank (ADB) to recapitalise the bank, presently short of Rs. 11 billion in capital adequacy.

The official said when the bank has sufficient funds in tier one capital, which accounts for share capital and retained profits, it will revalue the fixed assets. Meanwhile, the ADB has promised to give a US$ 20 million grant. "Together with the first ADB tranche of US$ 20 million and the asset revaluation we can reach Central Bank's minimum capital adequacy requirements," the official said, adding that it will be done in two years.

Dr. Jayamaha said that the bank will be able to reduce structural interest mismatches through recapitalising and by converting part of the government restructuring bonds due in 2006, to tradable government treasury bonds. Dr. Jayamaha said that the bank will invest heavily to upgrade its software systems with online connections to all branches.

People's Bank recorded a profit after tax and before extra ordinary items of Rs. 2.195 billion for 2004, while crossing over from a negative net worth on the balance sheet to a positive net worth for the first time since 1998.

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