Banks Association says relieved by CBSL assurance on domestic debt optimisation

The Sri Lanka Banks Association (Guarantee) Ltd. (SLBA) yesterday said it is relieved to note that the Central Bank of Sri Lanka (CBSL) has assured banks that the regulatory stance in the on-going Domestic Debt Optimisation (DDO) discussions with the diverse stakeholders will be that, the banking sector stability cannot be put at risk.

SLBA said the capital and liquidity of the banks need to be maintained sufficient to support the growth of the economy post-debt restructuring, together with other necessary measures to bring the balance of payments and fiscal deficit into a sensible equilibrium. Presently the banking sector is well capitalised with average Capital Adequacy Ratio over 15% and a Liquidity Coverage Ratio of 200%. The imperative remains to be that this position is not weakened.

“We appreciate the long and arduous effort by CBSL leading up to the finalisation of the Extended Fund Facility (EFF) from the International Monetary Fund (IMF). This has contributed to improvement of market sentiment and economic outlook for the rest of the year. The hard policy measures taken by CBSL to create the conditions for facilitating the ongoing disinflation process and to restore stability to the economy must also be recognised,” SLBA said in a statement.

It said the challenges that the economy and the banking system could face in the period ahead if the envisaged Balance of Payments and Fiscal Reforms are delayed or derailed are significant for the economy and the banks. “We therefore take comfort from CBSL’s assurance,” it added.

SLBA also pointed to IMF Asia and Pacific Department Director Krishna Srinivasan saying “when you restructure domestic debt, you have to make sure that you also safeguard financial ‘system’ stability. This thinking adds comfort to the banks at this time” during IMF Regional Economic Outlook on Asia and Pacific launch media briefing in Hong Kong.