Bad loans at Sri Lanka’s com­mer­cial banks fall­ing and prof­its ris­ing

The Pak Banker - - Company& -

COLOMBO: Bad loans at Sri Lanka's com­mer­cial banks are fall­ing, and prof­its are ris­ing and credit growth is pick­ing up as the econ­omy re­cov­ers and a leaves be­hind the ef­fects of a burst bub­ble, a re­port by the is­land's bank­ing reg­u­la­tor shows.

Bad loans at Sri Lanka's 22 com­mer­cial banks in­creased to 8.2 per­cent of to­tal loans in 2009 from 6.0 per­cent in 2008, but had fallen to 7.0 per­cent by June 2010, a re­port by the Cen­tral Bank shows.

Loans went bad in 2009 af­ter in­ter­est rates rose above 20 per­cent to de­fend Sri Lanka's un­sta­ble 'soft-peg' with the US dol­lar, burst­ing a bub­ble fired by money print­ing and deficit spend­ing since 2004.

But Sri Lanka's sub-prime fi­nance com­pany sec­tor which is more ex­posed to prop­erty suf­fered more than com­mer­cial banks, which are cau­tious about lend­ing long-term due to prof­li­gate fis­cal pol­icy and loose mon­e­tary pol­icy which makes in­ter­est rate ex­tremely volatile.

Prof­itabil­ity mea­sured by re­turn on as­sets, which fell to 1.7 per­cent in 2009 from 2.0 per­cent a year ear­lier had in­creased to 2.8 per­cent by June 2010.

Re­turn on eq­uity (af­ter tax) had in­creased to 23.4 per­cent by June 2010 af­ter fall­ing to 11.0 per­cent in 2009 from 14.8 per­cent a year ear­lier.

Pre-tax prof­its had risen to 35 bil­lion ru­pees at the 22 com­mer­cial banks by June 2010 up 48 per­cent from 23.8 bil­lion ru­pees a year ear­lier.

Prof­its from fund based ac­tiv­i­ties had in­creased 14.0 per­cent by fee based in­come had grown by just 3.0 per­cent with for­eign ex­change in­come fall­ing 7.0 per­cent.

Sri Lanka's ru­pee ap­pre­ci­ated against the US dol­lar and a tighter peg also re­duced volatil­ity, since a bal­ance of pay­ment cri­sis ended in April 2009.

To­tal cap­i­tal ad­e­quacy ra­tio at com­mer­cial banks fell to 15.2 per­cent by June 2010, from 15.4 per­cent in 2009, af­ter climb­ing from 13.8 per­cent in 2008.

In 2009 banks stopped lend­ing to risky pri­vate bor­row­ers and started fi­nanc­ing the govern­ment deficit which ex­panded to 10 per­cent of gross do­mes­tic prod­uct.

Gild-edged govern­ment se­cu­ri­ties free risk-weighted cap­i­tal, al­low­ing cap­i­tal ad­e­quacy to rise even as bad loans in­crease. Up to June credit has ex­panded 122 bil­lion ru­pees, up 8.7 per­cent, from a 2.8 per­cent con­trac­tion a year ear­lier.

Bad loans at Sri Lanka's li­censed spe­cial­ized banks, which do not have cur­rent ac­count fa­cil­i­ties un­like com­mer­cial banks, were still ris­ing slowly, though prof­its were re­cov­er­ing strongly.

Non-per­form­ing loans at li­censed spe­cial­ized bank rose to 10.5 per­cent of gross loans by June 2010, up from 10.4 per­cent in 2009. In 2009 bad loans rose sharply from the 8.9 per­cent, a year ear­lier.

But prof­itabil­ity at Sri Lanka's 14 spe­cial­ized banks, mea­sured by re­turn on as­sets rose to 4.7 per­cent by June 2010, up from 2.4 per­cent in 2009. In 2008 re­turn on as­sets was only 1.4 per­cent.

Re­turn on eq­uity rose to 39.2 per­cent by June 2010, up from 15.1 per­cent in 2009 and 6.9 per­cent in 2008. -PB News

KARACHI: Sindh Chief Min­is­ter Syed Qaim Ali Shah at­tend­ing brief­ing on Sindh Coastal Devel­op­ment Author­ity at Chief Min­is­ter House. -App

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