Treasury steps in to safeguard key state banks
View(s):The government has devised a plan to rescue
Sri Lanka’s two key state banks, Bank of Ceylon and the People’s Bank in light of capital adequacy challenges, the Committee on Banking and Financial Services said in a recent report.
The Finance Ministry has already taken precautionary measures to tackle the impact on capital position of these two banks following the potential debt restructuring of state-owned enterprises amounting to US$ 3,739 million by the end of 2022.
This has pushed the two state banks apparently towards the debt risk exposing capital adequacy problem.
In this context, the committee has recommended to consider recapitalising these two banks through institutional investors, such as the International Finance Corporation and Asian Development Bank.
Moreover the Treasury has allocated Rs.450 billion from the 2024 budget for the recapitalisation of state banks.
This recapitalisation will mainly benefit business owners with insolvent enterprises instigating a risk under prevailing banking practices.
The higher capital levels of banks will enable it to avoid declaring bankruptcy of insolvent companies and instead, renegotiate and/or extend the terms of their loans, the report observed.
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