Sri Lanka Central Bank assures banking sector stability in debt restructuring process

(LANKAPUVATH | COLOMBO) –The Central Bank of Sri Lanka (CBSL) has assured the banks that the regulatory stance in the on-going Domestic Debt Optimization (DDO) discussions with the diverse stakeholders will be that, the banking sector stability cannot be put at risk, Sri Lanka Banks Association (Guarantee) Ltd (SLBA) said in a statement.

The SLBA said the capital and liquidity of the banks need to be maintained sufficient to support the growth of the economy post-debt restructuring, together with other necessary measures to bring the Balance of Payments and Fiscal deficit into a sensible equilibrium.

“Presently the banking sector is well capitalized with average Capital Adequacy Ratio over 15% and a Liquidity Coverage Ratio of 200%. The imperative remains to be that, this position is not weakened.”

The SLBA says it appreciates the long and arduous effort by CBSL leading up to the finalization of the Extended Fund Facility (EFF) from the International Monetary Fund (IMF).

“This has contributed to improvement of market sentiment and economic outlook for the rest of the year.”

The SLBA stressed the hard policy measures taken by CBSL to create the conditions for facilitating the ongoing disinflation process and to restore stability to the economy must also be recognized.

The Banking Association said it takes comfort from the CBSL’s assurance.

“The challenges that the economy and the banking system could face in the period ahead if the envisaged Balance of Payments and Fiscal Reforms are delayed or derailed are significant for the economy and the banks. We therefore take comfort from CBSL’s assurance.”

“At the launch of the IMF Regional Economic Outlook on Asia and Pacific Press Briefing in Hong Kong Krishna Srinivasan, Director, Asia and Pacific Department, noted that; when you restructure domestic debt, you have to make sure that you also safeguard financial ‘system’ stability. This thinking adds comfort to the banks at this time.”

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