As governments across western markets moved to stem the global financial crisis and restore confidence in battered markets following the US financial crisis, officials in Colombo said Sri Lanka so far has been unaffected by the situation.

“So far there is no impact but we are watching the situation closely,” said Central Bank (CB) Governor Ajith Nivard Cabraal on Thursday. “The US government bailed AIG (American International Group Inc) with a $85 billion package which is three times the size of Sri Lanka GDP (Gross Domestic Product).” He said there was no exposure to state agencies here from agencies involved in the US crisis.

In the US, the government stepped in to rescue financial institutions, AIG, Fannie Mae and Freddie Mac while Lehman Brothers filed for backruptcy and Merill Lynch was bailed out by Bank of America in one of the worst financial crises in the US since the 1930s.

The Colombo bourse was unaffected by the developments with more weightage being given to sharp falls in top stocks than external factors. Local bankers told The Sunday Time FT that the fall of Lehman Brothers will not affect Sri Lanka as commercial banks wouldn't have anything to do with them or any other investment banks in the US. Locally, only the CB would have dealt with them if at all and that too for securities.

The Sri Lankan government deals with JP Morgan Chase, HSBC and Citibank amongst others. Bankers said this holds true for the local commercial banks as well who maintain accounts with these names and other commercial banks in the US such as Wells Fargo and Wachovia. However, the CB does have accounts at the US Federal Reserve and also with US commercial banks. The Federal Reserve account is a privilege that only the CB has, they said. Bankers said that the issue is really with Cibitank which has unsecured exposure to Lehman Brothers. According to a Bloomberg article, the bankruptcy filing is by Lehman's holding company and will not include any of its subsidiaries. However, Lehman's largest unsecured creditors are Citibank and The Bank of New York Mellon Corp. as trustees for bondholders owed US$138 billion.

Brokers said US funds have relatively limited direct exposure to Sri Lanka compared to funds based in Singapore, the UK and Hong Kong but some exposure is likely in the major blue chips such as Dialog and John Keells Holdings (JKH). “US-based Raj Rajaratnam's fund holdings here may however merit watching. He has a major stake in JKH and other blue chips, both in his fund name and in his personal name,”one broker said.

Vajira Premawardhane, Executive Director, Lanka Orix Securities noted that if there are funds which are exposed to the US crisis which have invested here, they may want to recover some money from the local markets. "If this happens our indices may come down further," he added. Dimuthu Abeysekera, CEO, Asha Phillips said since the local market had been performing on low sentiments it will not have a major impact from the US crisis.