DFIs snub banks seeking credit lines

Sri Lankan banks that were aggressively pursuing foreign credit lines to boost their foreign exchange reserves are shunned by these creditors as the forex crunch escalates.

Amidst the exchange rate issues, lack of reserves and liquidity in the banking industry, certain commercial banks were in discussion with development finance institutions (DFIs) to secure credit lines and beef up their foreign reserves.

The country’s C-rating has not helped their efforts, bankers say noting that DFIs extending credit lines with low interest rates are becoming exceedingly conservative in their lending or being Reluctant to do so.

Standard & Poor's credit rating for Sri Lanka stands at CCC with negative outlook. Moody's credit rating for Sri Lanka was last set at Caa2 with stable outlook. Fitch's credit rating for Sri Lanka was last reported at CC with n/a outlook. These ratings show that the Sri Lankan government will find it difficult to meet its debt obligations in the absence of new external financing sources. Economists say that DFIs also have limitations in investing and extending credit lines to C-rated nations.

“One of the few options available to us is to go to portfolio managers accepting higher risks but extending loans at high interest and limited to smaller amounts,” a second banker told the Business Times. Many banks are targeting small funding lines from certain funding agencies and hedge funds. These also come at higher interest rates. They are hanging onto the last straws to boost their exchange base.

On the other hand, all the banks are sending marketing teams to secure migrant worker remittances in popular corridors such as West Asia. “We are doing all we can to overcome this situation and shore up foreign exchange,” a third banker said.