Lankan banks dominated by public-sector - Fitch
Fitch Ratings Lanka has released a special report on Sri Lanka
banking sector that highlights the structure, performance, trends and
other developments pertaining to the sector.
The agency notes that the Sri Lankan banking sector is concentrated
and dominated by public-sector banks that accounted for about half of
sector assets at end of 2010. The six large banks identified as
systemically important accounted for 64% of sector assets at end of
Sri Lankan banks experienced a surge in lending in 2010 and through
2011. In the absence of significant financial disintermediation, bank
loans remain the dominant financial intermediary.
Further, the level of credit penetration remains low, indicated by
loans/GDP of about 36% at H111.
Fitch believes that lending to SMEs is likely to increase in the
current economic environment, although this could present challenges in
terms of risk management.
Sri Lankan banks benefit from a substantial share of customer deposit
funding, reflecting their strong domestic franchises. Deposits have
historically funded over 70% of bank assets.
Tier 1 and total capital adequacy ratios for the sector decreased to
13.4% and 14.9%, respectively, at end-H111. Recognising the need for
stronger capitalisation, Fitch notes that some banks raised Tier 1 and
Tier 2 capital in H211.
In the agency’s opinion, key challenges facing the Sri Lankan banking
sector include managing asset quality and accessing capital in the face
of rapid expansion, enhancing risk management capabilities, implementing
changes in accounting standards in line with international norms, and
managing the impact of global market instability.
Fitch rates 19 banks in Sri Lanka, including 11 local licensed
commercial banks, three foreign bank branches, and five licensed
The report, entitled ‘The Sri Lankan Banking Sector’, is available at
www.fitchratings.com, or by clicking on the link above.