Are Lankan banks immune to tough economic conditions? The numbers tell the story

„Record Rs.120.6bn aftertax profit, registering 20% YOY growth during first 11 months of 2016 „Show ability to maintain margins and generate other incomes by way of prudent asset and liability mgt.

Despite the tougher operating conditions, Sri Lankan banks have performed well during 2017 while the other sectors felt the brunt as the sector made some strong gains in profits, prompting one to wonder whether the banks are immune to economic shocks. During the first 11 months of 2017, Sri Lanka’s banks— both licensed commercial banks and licensed specialized banks—have made a thumping Rs.120.6 billion in aftertax profits, registering a growth of 20 percent from the same period last year.

On an absolute basis, the banking sector has made Rs.20 billion in after-tax profits over and above what the sector made during the first 11 months of 2016.

There are 25 licensed commercial banks and seven licensed specialized banks operating in Sri Lanka.

Meanwhile, the profit before tax in the sector was up by Rs.38.2 billion to a whopping Rs.212 billion.

Sri Lanka’s banking sector is subject to an effective tax rate of 50 percent—significantly high when compared to most other countries.

The stellar performance in the profits is despite the slight easing seen in the growth in private sector credit.

Sri Lanka’s banks extended Rs.558 billion in credit to private individuals and corporates during the first 11 months of 2017 in comparison to over Rs.750 billion in private sector credit given in whole of 2016. This translates into a slowdown in the growth to 15.4 percent in November 2017 on a yearon-year basis from 22 percent growth recorded in December 2016.