By: Staff Writer
January 24, Colombo (LNW): Clarifies IMF’s reference to recapitalisation; says it is only relevant if CBSL’s balance sheet turns negative post-debt restructuring Affirms positive equity at end of December balance sheet
Highlights CBSL’s transition from negative capitalisation in 2022 to a positive status last year despite economic challenges
Central Bank Governor Nandalal Weerasinghe dismissed the necessity for a recapitalisation by 2025, asserting that the institution had maintained a positive balance sheet even after enduring an economic crisis and undergoing debt restructuring.
Speaking at the post-Monetary Policy Review meeting media briefing yesterday, he clarified that the International Monetary Fund’s (IMF) mention of CBSL recapitalisation in 2025 is contingent on the Central Bank’s balance sheet or net worth turning negative following the impact of the debt restructuring process.
“As of the end of December, we sustained a positive equity. I don’t believe there’s a requirement for us to pursue recapitalisation. The IMF only highlighted it to ensure Government commitment if recapitalisation becomes necessary post-debt restructuring process,” he explained.
Highlighting the positive transformation, Dr. Weerasinghe noted that CBSL experienced negative capitalisation in 2022, which reversed to a positive status last year despite the economic crisis and debt restructuring.
“I don’t see any reason for further deterioration unless there’s a significant market shock,” he stressed, expressing confidence in the institution’s financial stability moving forward.
The banking sector, which was adversely affected by the spillover effects of the recent economic crisis, continued to operate amidst challenging conditions while some signs of improvement were observed during the year ending Q3 of 2023.
Credit granted by the banking sector contracted during the period albeit some recovery was observed within Q3 of 2023.
Credit risk of the banking sector as indicated by the Stage 3 Loans Ratio remained elevated, reflecting deteriorated debt servicing capacities of economic agents due to shrinking balance sheets amidst adverse economic conditions.
However, stabilisation of credit risk was witnessed during Q3 of 2023 as indicated by the slowdown in the increase of Stage 3 Loans.
Meanwhile, credit concentration risks persisted within the banking sector with some high credit concentration on certain sectors, namely, construction and agriculture, posing higher vulnerabilities due to economic and climate related issues.
In addition, the high exposure of the banking sector to the sovereign posed concerns for the sector, which necessitated the exclusion of banking sector investments in Treasury bonds from the restructuring perimeter.
Increased investments in Rupee-denominated Government securities resulted in a significant increase in liquidity ratios of the banking sector while overall utilization of Standing Lending Facility by the banking sector reduced significantly.
