- Plans considered due to projected economic contraction, increase in NPL
- Nandalal says discussing risks and uncertainties with each bank
By Imesh Ranasinghe
- Adds banks in a good position however, maintaining requirements
The Central Bank of Sri Lanka (CBSL) is looking into the recapitalisation plans of banks in the event of rising Non-Performing Loans (NPLs), as the economy is expected to contract by 8% in 2022, CBSL Governor Dr. Nandalal Weerasinghe said.
Speaking to Bloomberg Markets and Finance
yesterday (22), the CBSL Governor said that the Central Bank has been holding discussions with each bank in Sri Lanka, looking at their risks, uncertainties, and challenges, as well as how to recapitalise if the need arises and the support the banks need in such a situation.
He added that the potential recapitalisation plans are being discussed at the moment. However, he said, banks are in a very good position and they currently exceed the requirements of Basel III, which involves market discipline, supervisory review processes, and minimum capital requirements.
The Basel III framework deals with market liquidity risk, stress testing, and capital adequacy in banks.
“Obviously if the NPLs are rising, there will be some risks in the banking sector; we are in a position to handle this together with the banking sector to mitigate the risk,” Dr. Weerasinghe said.
Last week, at the CBSL’s Monetary Policy Review, Dr. Weerasinghe said that the CBSL forecasts NPLs as a percentage of all bank loans to reach 8% in 2022, from 4.5% in 2021, while it expects the economy to contract by around 8%, in a revision to its previous forecast of a 7.5% contraction.
Quarterly financials released by the banks in the last two weeks show a massive increase in impairments. Commercial Bank recorded impairment provisions of Rs. 35.2 billion for 1H 2022, and Rs. 29.3 billion for 2Q 2022 alone, while Sampath Bank recorded a total impairment charge of Rs. 28.2 billion, Bank of Ceylon recorded Rs. 49.5 billion in impairment provisions for loans and advances, and HNB recorded Rs. 40.1 billion in impairment provisions for 2Q 2022.