The introduction of the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) under Basel III is likely to put pressure on bank capacity to take high risks and improve margins, Asia Securities,Senior Analyst, Srimal Liyanage said.
He made these remarks addressing a wealth insight series organized by Asia
Securities under the theme,“Banks;An evolving story of Elephants an Cheetahs, held in Colombo recently.
Under the LCR proposals, the banks need to hold high quality liquid assets to survive in emerging stress scenario whilst NSFR will limit the over reliance on wholesale and short term funding and ensures that investments activities are funded by stable liabilities.
“While there is insufficient data to calculate if the banks do meet the proposed ratios, our channel checks suggests that the banks are maintaining the ratios well above requirements. In order to maintain margins, banks will have to maintain the ratio limits well above the minimum standards which we think will result in additional capital being raised in the near future.
The banking sector represents for 14% in the total market capitalization of the Colombo bourse. Institutional funds will hold positions in the sector to maintain a positive alpha despite short term risks.” he added.
The banking sector must maintain its position in a sector which has a high weightage in the market index and is also largely secured by regulations due to recent political uncertainty. In order to maintain margins, banks will have to maintain the ratio limits well above the minimum standards. This will result in additional capital being raised in the near future.
The banks should also raise additional capital to cater to the increasing banking activities with economic growth.
Courtesy: Daily News 30 June 2015