Banks Association refutes S&P assessment.

The Sri Lanka Banks’ Association which represents the licensed banks operating in Sri Lanka has refuted the concerns expressed by the rating agency Standard and Poor’s (S&P)  about credit risk in the banking industry.

The Association says that credit growth has been significant at 23.7% and 31.3% in 2010 and 2011 respectively reflecting the banks’ role of supporting the  industry, agriculture, tourism, construction, infrastructure, transport, food and beverages across different business segments from small business enterprises to large Corporates across the country.

In a statement issued yesterday, the Association says that the banking sector plays a pivotal and responsible role in channeling public deposits to investment and consumption lending that ultimately assists in improving standard of living and quality of life of the citizens of this country. It should be a source of significant comfort that despite the levels of credit growth recorded asset quality has improved significantly reflected in gross nonperforming assets level improving to 3.8% in 2011.

 
The Association points out that several banks were successful in raising dollar funds from international capital markets at very attractive interest rates which is a sound reflection of international investors’ perceptions. Whilst it is fair to say that majority of bank lending is backed by collateral, this in no way reflects the credit standards adopted by the banks in assessing the cash flow repayment ability of borrowers.

The Association also says that in the context of a volatile and challenging global economy we are well aware that banking industry in Sri Lanka cannot be fully insulated from risks arising from commodity prices, reduced purchasing power from Western Economies and the contagion impacts of a global downturn.

However, it says that banks in Sri Lanka have been tested for resilience in far more challenging times in the past and confident that adequate capacity has been built in the areas of risk management, capital and liquidity to continue to play a pivotal role in the economy in managing the future. There is no evidence to suggest that the public’s confidence in the health and stability of the banks in Sri Lanka needs to be shaken.

The Association concluding its statement emphasized that taken in the context of  bank failures in  other parts of the world, especially in the United States of America and which still appear to take place long after the financial crises, Sri Lanka’s banking system is considered quite stable and robust by the international community.(niz)