NPLs: Banks sitting on ‘time bomb’

The banking sector has made a lot of money during the past few quarters owing to the exchange rate volatility and interest rate fluctuations.

Riding high on this, the banks have not seen bad loans as much as they should have with the pandemic-related moratorium being extended a few times by the banking regulator.

However, banking industry officials say the banks are sitting on a time bomb when the moratoriums tied to the tourism sector kicks in later this year.

The sliver of hope the country had in terms of tourism kicking in has evaporated with the war between Russia and Ukraine breaking out.

Both these countries are big tourist markets for Sri Lanka. This year up to February 11, Russians accounted for 18,044 of the holiday makers who visited Sri Lanka while Ukrainians accounted for 9,883.

The US and its allies ramping up their sanctions against Russia announcing that certain

Russian banks would be cut off from SWIFT ( Society for Worldwide Interbank Financial Telecommunication) which is a global messaging system used by banks worldwide to carry out their business and issue payments will impact the tourism sector as the tourists will find it hard to pay.

A tourism industry professional remarked that many Russian tourists come through travel agents on packaged tourist deals and now they will find it difficult to pay with the latest developments on SWIFT transactions.

Hotels which were expecting tourists from these two countries and Europe at large are back to square one. “When there is a raging war in two European countries, it is bound to have spill over effects in other parts of the continent. The impact this war will have on tourism for a small nation like Sri Lanka is immense,” a tourism industry professional said.

With tourism income drying up repaying the loans will be difficult. The industry will for sure see big non-performing loans after the moratorium ends, an analyst said.