Sri Lanka to open up ownership of two state banks, Rs. 450 billion capital infusion for greater stability
Daily FT: President and Finance Minister Ranil Wickremesinghe via the 2024 Budget announced plans to open up the ownership of two State banks as well as capital support to ensure greater stability.
“The Government is keen to ensure that all prudent measures are taken for long-term banking stability. To this end, for systemically important banks, an independent asset quality review supported by the IMF program was conducted. The preliminary results of this asset quality review indicate the need to build additional capital accumulation on a prudent basis,” the President said during the 2024 Budget presentation in Parliament.
He proposed to allocate Rs. 450 billion to support the capital improvement process in the banking system. “The proposed provision to improve the capital of the banking sector will ensure the stability of the banking sector in the long run,” he said.
The President also proposed that 20% of the shares of the two large State-owned banks should be given to strategic investors or the public to improve capital and support the future growth of the two State-owned banks to reduce the burden on taxpayers’ funds.
In parallel, a number of reform measures are being implemented, including stricter rules on credit risk, such as stricter rules on the appointment of chief officers and state bank board members, and restrictions on individual borrowers, to prevent future financial deterioration of State-owned banks. Amendments to the Banking Act will provide the legal framework for these reforms and are expected to be passed in early 2024.
The President said bank recapitalization and external debt restructuring will require the issuance of new debt instruments with longer maturities. Therefore, Budget allocations are needed to settle the existing debt and the borrowing limit needs to be increased. Accordingly, he proposed to increase the borrowing limit by Rs. 3.45 trillion from Rs. 3.9 trillion to Rs. 7.35 trillion.
Wickremesinghe said following the completion of the domestic debt restructuring process, the overall macroeconomic stability and stability of the financial sector will be further strengthened.
As part of the restructuring of International Sovereign Bonds under the External Debt Restructuring Process, Sri Lanka’s net debt is reduced to its present value. He said USD denominated new financial instruments should be issued to settle existing international sovereign bonds. Accordingly, for the settlement of existing International Sovereign Bonds, budget allocations are required to record the transaction in the Government book of accounts. For the implementation of foreign debt restructuring and settlement of International Sovereign Bonds under foreign debt restructuring, the President proposed to allocate Rs. 3 trillion through 2024 Budget.
OSL take:
Sri Lanka’s banking sector has shown great resilience to challenging economic conditions. The country’s overall economy has also shown great resilience to internal and external challenges. The strength, growth and resilience of the country’s banking sector have helped boost the economy while also attracting foreign businesses/investors to the country. A strong banking sector is a prerequisite to a country working towards becoming an emerging business destination, which Sri Lanka is currently focused on. Given the ongoing economic activities in the country, the expansion in business/investment opportunities and the development of the country as an emerging business destination, foreign businesses/investors exploring opportunities in Sri Lanka could also look at investing in the growing opportunities in Sri Lanka’s banking sector. The opening up of ownership of two state banks by the government of Sri Lanka could therefore present an ideal business/investment opportunity for foreign businesses/investors.
| Article Code : | VBS/AT/20231114/Z_6 |