Sri Lankan banks on guard after Fitch downgrades Maldives
View(s):By Duruthu Edirimuni Chandrasekera
Sri Lankan banks are on high alert after international credit rating agency Fitch downgraded the Maldives in June warning that the country could be heading for a sovereign default on its foreign loans.
Fitch Ratings has downgraded the Maldives’ Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘CCC+’ from ‘B-’. Fitch typically does not assign Outlooks to sovereigns with a rating of ‘CCC+’ or below.
Top sources told The Sunday Times Business on Wednesday that local banks, both government and commercial, are watchful due to this issue.
Maldives has to pay US$400 million of sovereign debt payment by next month. The Maldives is facing a severe debt crisis, with the need for more than $500 million annually to repay its creditors. The debt repayment amount is set to increase to $1.07 billion in 2026, which surpassed the country’s foreign currency reserve of $492 million in May. Fitch Ratings, in its recent rating of the country, highlighted that the Maldives only has $73 million in usable foreign reserves, which is barely enough to cover a month’s worth of imports. This situation is concerning for a small island nation that heavily depends on imported medicine, oil, and staple foods.
Bankers, the Sunday Times Business spoke to recently, noted that there will be an impact, however small. A banker, noting that the Maldives has a lot of debt, said that Sri Lankan banks have a fairly large exposure to the Maldives, especially in resorts and state entities.
A second banker noted that foreign currency loans in Sri Lankan banks are not classified and as such, the exposure to Maldives alone cannot be quantified. “There are some businesses that borrow in Sri Lanka for projects overseas. This is another reason the loans are not classified,” he said.
Bankers noted that about 70 per cent of the Maldives that have borrowed in foreign currency loans in Sri Lanka are resorts adding that they haven’t seen much lending to government institutions.
An economist pointed out that the hotel sector in the Maldives is quite resilient and will recover faster than those in Sri Lanka.
The Aitken Spence group has six resorts in the Maldives, John Keells Holdings has four resorts under the Cinnamon brand in the Maldives while the LOLC Group under subsidiary Browns Hotels and Resorts is putting up two resorts to be managed by reputed international brands, and also putting up in the capital Male, the Nasandhura Maldives which is a luxury city hotel cum apartment complex with 150 rooms, 150 apartments and a retail mall.
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