Fitch Ratings-Colombo/Sydney-24 July 2023: The Sri Lankan government’s debt restructuring plan is likely to reduce investment and liquidity risks for domestic insurers, Fitch Ratings says.

Fitch expects pressure on insurers’ investment and capital profiles to ease as the proposed plan will not have direct impact on the local-currency government debt holdings of insurers, banks and non-banking financial institutions. Nonetheless, the proposal is only one aspect of the sovereign’s (Long-Term Local-Currency Issuer Default Rating: C) debt sustainability plan. Ratings on Sri Lankan insurers remain on Rating Watch Negative (RWN) amid high investment and liquidity risks, pressure on regulatory capital positions and a weak financial performance outlook, which could undermine insurers’ credit profiles relative to other entities on the national ratings scale.

Insurers’ holdings of Sri Lanka Development Bonds (SLDBs), which are foreign-currency denominated but governed by local law, will be affected by the debt restructuring proposal, as we expected. However, restructuring of the sovereign’s foreign debt, including international sovereign bonds (ISB), has yet to be finalised. Among Fitch-rated insurers, only a few have exposure to SLDBs or ISBs, which accounted for less than 5% and 0.2%, respectively, of the total invested assets of Fitch-rated insurers at end-March 2023.

The government has presented three treatment options for SLDBs, with the impact of any present-value losses on capital dependent on the treatment each insurer chooses. However, we believe that the satisfactory capital buffers maintained by Fitch-rated insurers would help to cushion any negative impact from the losses.

The investment and liquidity risk profiles of Sri Lankan insurers are closely linked with the sovereign, banks and non-bank financial institutions (NBFI) as their investment portfolios are dominated by fixed-income securities issued or guaranteed by the government (47% of invested assets at end-March 2023), corporate debt (21%) and deposits with local banks and NBFIs (10%).

The government’s domestic debt restructuring proposal excludes banks’ holdings of Sri Lankan rupee-denominated treasury securities, which will ease pressure on banks’ already stressed credit profiles. Fitch continues to maintain all ratings on domestic banks and NBFIs on RWN due to the heightened near-term downside risks to their credit profiles from capital, funding and operating environment risks.

We expect the sparse foreign-currency liquidity in the local banking system to continue to limit insurers’ ability to meet foreign-currency obligations, such as reinsurance payments and claim obligations arising from the small portion of foreign currency-denominated policies. Fitch-rated insurers’ foreign-currency insurance contract obligations are mostly reinsured. Fitch-rated insurers also have foreign-currency deposits with local banks to support their foreign-currency obligations.

Source: Fitch Ratings

By: Staff Writer

Colombo (LNW): One in every three loans provided to small and medium enterprises (SMEs) in Sri Lanka by lending institutions in 2022 was by the Commercial Bank of Ceylon, recently released official Government figures reveal.

This emphatic reaffirmation of Commercial Bank’s status as the largest lender by far to the country’s SME sector comes in the 2022 Annual Report of the Ministry of Finance, which shows that the Commercial Bank accounted for 34.2% of the total loans provided to the SME sector by commercial and specialised banks.

Commercial Bank lent Rs. 195.852 billion out of Rs. 619.891 billion in loans provided to SMEs by the 18 institutions in 2022, while the number of loans granted by the Bank was 43,427 from the total of 126,899 loans granted in the reviewed year.

Commercial Bank’s contribution was particularly evident in the industries category, with the Bank accounting for more than half of the total number of loans provided to the category by all banks.

Commercial Bank’s Managing Director/ CEO Sanath Manatunge said. The bank’s  financial experience built on decades of prudent management, and our adherence to core values and fundamentals definitely add value in catering to these customers.”

He said the Bank objectively assesses the financial requirement of SMEs and seeks lending opportunities in targeted segments such as exports, local manufacture and import substitution industries, to which financial assistance is extended through the concessionary credit lines secured by the Bank.

In order to revitalise businesses that are under-performing due to various reasons, the Bank setup a Business Revival and Rehabilitation Unit in 2020 to proactively support businesses that show early warning signals.

During the year under review, the special unit assisted many SMEs while providing support services to regenerate their momentum.

SMEs have also faced difficulties in sustaining their operations due to other factors, including the shortage of foreign currency reserves, import restrictions, supply disruptions and resource mobilisation limitations in the reviewed year.

The Bank said it has adopted a systematic approach to help manage various challenges, creating fair opportunities for all customers.

The Bank has made significant contributions to develop the businesses of SMEs by conducting capacity building programs, creating value chains, creating networking opportunities, conducting trade fairs and encouraging SMEs to go digital.

.Commercial Bank recently launched a comprehensive Business ecosystem branded ‘Commercial Bank LEAP GlobalLinker’ – a digital platform designed to help businesses, particularly small and medium-sized enterprises, to transition to the global market by digitising and networking with other businesses across borders.

By: Staff Writer

Colombo (LNW): Indian Billionaire Gautam Adani’s conglomerate is set to invest heavily in renewable energy and port development projects in the island pledging to set up a green hydrogen plant in Sri Lanka, where his conglomerate is already developing a container terminal and a 500 MW wind project.

Adani met visiting Sri Lankan President Ranil Wickremesinghe to discuss ongoing projects and the new venture.

The Adani Ports and Special Economic Zone (APSEZ) is developing a US$ 700 million container terminal at Colombo Port, which is a major transshipment hub in South Asia.

The Adani group is also developing the Vizhinjam seaport project in Kerala, just 176 nautical miles from the Colombo port.

The conglomerate’s renewable energy firm, Adani Green Energy, is setting up two wind projects of 286 MW in Mannar and 234 MW in Pooneryn at an investment of $500 million. The projects are to be completed by December 2024.

The Adani Group’s recent meeting with the Minister of Energy marks the first formal dialogue since US-based Hindenburg Research made allegations against the Indian conglomerate, which it has categorically denied. T

he Adani Group’s venture into the country’s energy sector complements its previous investments in the port of Colombo’s Western container terminal. Gautam Adani, the group’s chief, met with former Sri Lankan President Gotabaya Rajapaksa in October 2021 to discuss the company’s investment plans in the country following the Colombo port deal.

This deal represents Sri Lanka’s first major foreign investment since it declared bankruptcy following an economic crisis last year. According to a statement from the Sri Lankan Board of Investment, the project will create between 1,500 and 2,000 new jobs.

The announcement comes as Sri Lanka is grappling with rolling power outages, resulting from the country’s struggle to generate adequate amounts of thermal and coal power.

This has spurred the government to expedite the development of renewable energy projects. In an effort to secure a $2.9 billion bailout from the International Monetary Fund (IMF) as it struggles to navigate its worst financial crisis in over seven decades, the island nation has increased power prices by a significant 66%recently.

At Colombo Harbour, the only deep-sea container port between Dubai and Singapore, the company is constructing a 1.4-kilometre, 20-meter-deep jetty immediately adjacent to a Chinese-operated terminal.

The development follows a stock crash in which Adani Group lost $120 billion in market capitalisation after the US-based investment research firm Hindenburg accused the company’s subsidiaries of accounting fraud and price manipulation in January 2023.

In 2019, a Chinese company was given a USD 12 million contract from the Asian Development Bank to construct three wind farms on islands in the Palk Strait, which separates India and Sri Lanka. However, New Delhi objected to the proposal, and it was cancelled.

Colombo (LNW): The Sri Lankan Rupee has further depreciated against the US Dollar in comparison to last week, as revealed by the official exchange rates list issued by the Central Bank of Sri Lanka (CBSL) today (24).

Accordingly, the buying price of the US Dollar has increased to Rs. 321.10 from Rs. 318.72, and the selling price to Rs. 334.55 from Rs. 331.98.

The Sri Lankan Rupee has also depreciated against several other foreign currencies, including Gulf currencies.