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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » S&P assessment on Sri Lanka:

S&P assessment on Sri Lanka:

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1S&P assessment on Sri Lanka: Empty S&P assessment on Sri Lanka: Tue Jun 19, 2012 11:58 pm

CSE.SAS

CSE.SAS
Global Moderator
Economy, banking system at ‘very high’ risk
says Central Bank supervision not enough, flags potential conflict of interest regards to EPF investments in banking stocks

Standard & Poor’s Ratings Services yesterday (19) assigned Sri Lanka to its Banking Industry Country Risk Assessment (BICRA) group ‘8’. At the same time, it assigned an economic risk score of ‘8’ and an industry risk score of ‘7’.

"We have reviewed the banking sector of Sri Lanka (Democratic Socialist Republic of) (B+/Stable/B). The BICRA groups summarize our view of the risks that a bank operating within a particular country and banking industry faces relative to those in other banking industries. They range from group ‘1’ (the lowest risk) to group ‘10’ (the highest risk). Other notable countries in BICRA group ‘8’ are Nigeria, Tunisia, and Kazakhstan," the ratings agency said.

"Our economic risk score of ‘8’ for Sri Lanka reflects a "very high risk" assessment of economic resilience and credit risk in the economy, and a "high risk" assessment of economic imbalances, as our criteria define those terms," S&P said.

"Our assessment of economic resilience reflects Sri Lanka’s status as a low-income economy, as measured in terms of its per capita GDP, and the inefficiencies in the economy. Nevertheless, Sri Lanka’s economic growth prospects have improved following the end of the civil war and subsequent shift in the government’s focus toward boosting the economy and diversifying sources of growth.

"Our assessment of economic imbalance factors in the recent pickup in growth of private sector credit. The central bank’s recent directive to apply a ceiling to the credit growth of banks should help to partially curb this risk. Nevertheless, in our view, Sri Lanka’s economic imbalances could increase if credit growth continues at the current pace. Sri Lanka’s external position, which we consider to be moderately vulnerable, also affects the country’s economic imbalance. Our assessment of Sri Lanka’s external position reflects the country’s weak external liquidity, and moderately high and increasing external debt.

"Our view of credit risk in Sri Lanka takes into account moderate private sector debt in the context of low income levels, relaxed lending practices and underwriting standards, as well as a weak payment culture and rule of law. The use of cash flow analysis for underwriting is limited in Sri Lanka, and some exposures are concentrated. Moreover, risk management practices are evolving, in our view.

"Our industry risk score of ‘7’ for Sri Lanka is based on our opinion that the country faces "very high risk" in its institutional framework, "high risk" in its competitive dynamics, and "intermediate risk" in its system-wide funding.

"We view the banking regulations in Sri Lanka as somewhat weaker than international standards. Governance and transparency of banks are weak by global standards. Sri Lanka adopted a standardized approach of Basel II in 2008, with capital requirements higher than global requirements. The key regulations for banks seem sufficient. However, finance companies are less regulated, in our view. This is despite the December 2008 collapse of a finance company triggering a run on a bank in that group."

S&P further said that under the existing legislation, banks in Sri Lanka are subject to on-site examinations by the banking sector regulator at least once every two years, which is not adequate.

"We believe the frequency of on-site supervision may not be sufficient for the regulator to quickly detect risk build-ups. Moreover, we see a potential conflict of interest in the central bank’s role. In addition to policy formulation and supervision of banks, the monetary board of the central bank also oversees Employees’ Provident Fund investments. The fund is a large investor in Sri Lankan banking stocks"

The banking sector’s risk appetite is "moderate," in our view. Loan growth is high. However, banks in Sri Lanka are mostly engaged in traditional lines of business and most of their earnings come from traditional fund-based businesses, S&P said.

"Sri Lanka’s large number of banks relative to the small economy has not led to any significant instability in the competitive environment. However, the following factors have led to market distortions: (1) a significant market share (about 50%) of government-owned banks in the sector; (2) directed lending requirements toward the agriculture sector; and (3) differential use of administrative controls; e.g. a recent cap on loan growth is applicable only to banks.

"Sri Lanka’s large proportion of highly stable core customer deposits support system-wide funding. Such deposits reduce banks’ dependence on external debt. Nevertheless, we believe access to alternative domestic funding sources is limited because the domestic debt capital market is narrow and shallow.

"In our view, the Sri Lankan government has a "supportive" tendency towards private sector banks. We believe that the government is committed to maintaining financial system stability and market confidence. The government has a record of supporting banks during periods of financial stress by encouraging market-led solutions. For instance, in the case of Ceylinco Group, the banking sector regulator stepped in and dissolved the board of directors of group entity, Seylan Bank PLC, and supported the sale of Seylan Merchant Leasing PLC," S&P said.
http://www.island.lk/index.php?page_cat=article-details&page=article-details&code_title=54827

2S&P assessment on Sri Lanka: Empty Re: S&P assessment on Sri Lanka: Wed Jun 20, 2012 5:01 am

sanjeewa88

sanjeewa88
Manager - Equity Analytics
Manager - Equity Analytics
ශ‍්‍රී ලංකාවේ බැංකු ඉහළ ආර්ථික අවධානමක: S & P

ශ්‍රී ලංකාවේ බැංකු කර්මාන්තය ඉතා ඉහළ ආර්ථික හා ණය අවධානමකට මුහුණ දී ඇතැයි ස්ටෑන්ඩර්ඩ් ඇන්ඩ් පුවර්ස් ජාත්‍යන්තර ණය වර්ගීකරණ ආයතනය අනතුරු හඟවයි.

වර්ගීකරණ ආයතනය විසින් බැංකු කර්මාන්තයේ අවධානම් තක්සේරු කිරීම යටතේ ලංකාව වෙනුවෙන් සිය ආර්ථික අවධානම් ලකුණු ක්‍රමය අනුව ලකුණු 08 ක් ලබාදී තිබෙන අතර අධි අවධානම් ලකුණු මට්ටම වන්නේ ලකුණු 10 කි.

මේ අනුව, ලංකාවේ බැංකු කර්මාන්තයට ලැබී තිබෙන්නේ නයිජීරියාව, ටියුනීසියාව හා කසකස්ථානයට සමාන ලකුණු මට්ටමකි.

ස්ටෑන්ඩර්ඩ් ඇන්ඩ් පුවර්ස් ණය වර්ගීකරණ ආයතනය පවසා තිබෙන්නේ සිය ආර්ථික අවධානම් ලකුණු මට්ටම අනුව ලංකාවට ලබාදී තිබෙන ලකුණු 08 ක ප්‍රමාණයෙන් කියවෙන්නේ ආර්ථිකය මුහුණදී තිබෙන ඉහළ ආර්ථික හා ණය අවධානම බවයි.

එසේම, ලාංකේය ආර්ථිකයේ අකාර්යක්ෂමතාවයන් ඇතැයි අවධාරණය කර තිබෙන ස්ටෑන්ඩර්ඩ් ඇන්ඩ් පුවර්ස් මෙරට බැංකු කර්මාන්තය වෙනුවෙන් අවධානම් ලකුණු 07 ක් ලබාදී තිබේ.

ජාත්‍යන්තර ප්‍රමිතීන් හා තත්ත්වයන්ට අනුව නියාමන තත්ත්වයන් දුර්වල වුවත් මෙරට බැංකුවල ප්‍රාග්ධන අවශ්‍යතාවය ඉහළ බව මෙහිදී අවධාරණය කර ඇත.

එසේම, පාලනය හා විනිවිද භාවයද ජාත්‍යන්තර ප්‍රමිතීන්ට අනුව සසඳන විට දුර්වල බව සඳහන්ය.

මීට අමතරව, මහ බැංකුව සේවක අර්ථ සාධක අරමුදලේ මුදල් කොටස් වෙළඳ පොළේ ආයෝජනය කිරීම පිළිබඳ මහ බැංකුවේ පාලන මණ්ඩලය සමග නියාමන ගැටුමක් තිබෙන බවත් පුවර්ස් අවධාරණය කර ඇත.

http://www.lankacnews.com/sinhala/main-news/65301/

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