Asset base to support GDP growth:
Banking stocks highest gainers
Banking sector stocks were the highest gainers in the resurging
Colombo Bourse in the second half of 2009, a report on the local banking
sector said. The Bartleet Mallory Stock Brokers report on local banking
sector said Year on Year (YoY) profit growth of around 3 percent and net
interest margins of 4.6 percent saw Sri Lanka’s banking sector ride out
the slowdown in the domestic economy due to the global financial crisis
with a healthy and even improved performance by many banks by third
quarter of 2009.
Sri Lanka is pushing to double GDP per capita to around US$ 4,000 by
2014. According to the Central Bank, a banking sector asset base of
nearly US$ 25 to 30 billion will be required to support this growth.
|* 23 licensed
* 15 specialized banks
The sector will see increased supervision from the Central Bank
including perhaps frequent market adjustments using repo rates and
statutory reserve requirements.
This could be a positive move in the long run if it serves to create
stability in the sector and prevent systemic shocks when large banks or
banking intermediaries fail, the report said.
The Report said the sector will see reduced lending from foreign
banks and increased reliance on domestic funding.
Despite the adverse economic climate in late 2008 and 2009 many of
the banks have kept the momentum on net interest income upto 3Q 2009
giving a good indicator of being able to at least sustain 2008 earnings.
The sector performed well in second half 2009 and most banks can be
expected to record healthy net profit after tax growth for FY09 report
said. In a small market of less than Rs 2,000 bn, with 23 Commercial
Banks and 15 specialized banks, securing market growth is vital.
A larger part of the banking sector has focused on urban and
corporate markets and traditional banking products.
At present more than 45 percent of the market share of loans and
advances is held by State sector banks. However private banks are making
good inroads into these markets with innovative products and much higher
With the large investment required for infrastructure development it
will become inevitable for the Government to further open up
infrastructure projects to the private sector.
The local banking sector will find an opportunity to participate in
these projects. Consolidation is the way forward for the Sri Lankan
banking sector with a need to boost its asset base to take advantage of
the upcoming development opportunities.
Banks to watch out for are those where management is forward thinking
and empowered to mix traditional banking with strong inroads into fee
based products and project based lending, it further said.