Growth in banking sector

The Banking sector has shown a significant growth during the first half of year with the expansion of branches reflecting continued economic activity Central Bank sources said.

During that period their was an increase in assets, loans and deposits by Rs. 203 billion (9.5%), Rs. 144 billion (11.2%) and Rs. 114 billion (7.6%), respectively, recording a real growth of financial resource mobilisation and utilisation.

With the opening of 45 new banking outlets including branches, extension offices and other service centres and 52 new automated teller machines (ATMs) facilitating greater access to liquidity. Out of these 45 new banking outlets, 14 were opened in the Colombo district while the rest were opened in locations outside the Colombo district.

Approvals had been granted for another 37 banking outlets and to relocate 22 existing outlets.

A pre-tax profit of Rs. 26 billion indicating a 23 per cent growth when compared to pre-tax profit of Rs. 21 billion was reported during the first half of 2006. This profit growth has led to increase the return on assets from 2.2 per cent to 2.3 per cent.

According to statistics nearly 40 per cent of the banking sector income is consumed by banks by way of operational expenses, staff and shareholders, while 50 per cent is given out to depositors and creditors by way of interest payments and the balance 10 per cent to the Government as taxes.

Maintenance of non-performing loans is at a ratio around 5.7 per cent of total loans despite the high growth in loans, its sources said. In the entire banking sector there is a remarkable expansion in credit card advances by Rs. 3 billion, registering a real growth of 10 per cent while maintaining the non-performing credit card loans around 6 per cent.

Increase in capital funds by Rs. 21 billion or 13 per cent indicating enhanced cushion for banking risks.

The capital funds as against the estimated risks on banking business were maintained around 13 per cent when compared to the international norm of 8 per cent-10 per cent. The growth of liquid assets (the assets that can be sold for cash easily to meet the funding needs) by Rs. 63 billion or 11 per cent, its sources said.

The Central Bank has implemented a number of prudential measures to promote the resilience of the banking sector by mitigating any potential risks arising from various financial, economic and external factors.

The banks also addressed the issue of a new share ownership policy to promote corporate governance and to address conflict of interest arising from large share holding in banks.

It has also taken some action to enhance the level of capital by increasing risk weights applicable to certain banking assets thereby requiring the banks to maintain a higher level of capital, its sources said.

Advising banks to curtail lending for consumption and other non-productive purposes to mitigate potential credit risk and periodically monitoring bank credit delivery at targeted levels in line with the monetary policy framework.

It also widely discussed consultative policy documents on proposed adoption of Basel II capital standards and international accounting standards to promote risk management and financial reporting in line with new international standards.