By: Staff Writer
Colombo (LNW): Sri Lankan banks topped a list of lenders in the Asia-Pacific region with the best total stock returns, as stakes grow that the worst for the South Asian nation’s economy may have passed, banking sector reports revealed.
Hatton National Bank PLC, Sampath Bank PLC and Commercial Bank of Ceylon PLC logged the highest total stock returns among peers in the region this year according to a list compiled by S&P Global Market Intelligence.
Hatton National and Sampath posted total returns of more than 50%, albeit on the back of equally sharp declines earlier.
Sector looks past peak non-performing loans as rates ease, gradually re-opens lending taps Central Bank report highlighted.
The banking sector asset quality weakness held steady between June and September this year, but the industry is confident that the worst is over for them as they said they are seeing a slight moderation in the non-performing loans at present as the economy shows signs of some level of stabilization.
According to the latest quarterly data made available on banks by the Central Bank through September, banks saw their ‘stage 3 loans to total loans and advances’, the new accounting term for the traditionally called non-performing loans, holding steady at 13.4 percent, same as in the June quarter.
Sri Lanka’s banking sector was on a rollercoaster ride during the last four years or so as they were hit by multiple crises from the pandemic related business disruptions to the economic crisis which triggered mass scale defaults to the prospects of likely implications from the domestic debt optimisation.
Their stage 3 loans ratio which was at 8.4 percent at the onset of the economic crisis last year in the first quarter of 2022 steadily rose to 12.9 percent a year later before peaking at 13.4 percent by mid-year in 2023.
The breakdown of the status of the stage 3 loans between the licensed commercial banks and specialized banks however diverge somewhat.
While commercial banks improved their asset quality only modestly from 13.9 percent at its peak in June to 13.7 percent by September, the specialized banks saw its ratio rising from 9.3 percent to 10.1 percent in the same two periods.
Commercial banks have however begun to see further moderation in their non-performing loans coming into the ongoing fourth quarter as the easing interest rates are helping both the borrowers and the lenders alike in getting back into their activity.
While recent private sector credit data have shown that banks have clearly begun to reopen their lending spigots only gradually and cautiously, the borrowers are also showing some inclination as rates have come off their recent peaks.
Further, the language from the commentary by the banking sector chief executives which accompanied their September quarterly reports also showed growing willingness by them to lend more and also less concerns by them on the non-performing loans than a year ago.
The International Monetary Fund approving to release their second program tranche this week after holding back for more than two months would also help the country and the sector to look past the worst of the economic crisis going into 2024.
The banks have also begun to ramp up their capital as seen from the recent announcement for debenture issuances in a sign that they are gearing up for a high lending season from next year as the rates are expected to be further moderate after back-to-back policy rate cuts.
The rising loans and improving financial health of borrowers would help the sector to further see their non-performing loans ratios moderate next year.
