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Banking Sector NPL ratio reach 12.9%

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ChooBoy

avatar
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics

Licensed Commercial Banks NPL ratio up in 1Q 2023 to 12.9% from 11.5% in 4Q 2022

Banking Sector NPL ratio reach 12.9% Charts%2Fivmw0odt9h?alt=media&token=a600e05a-fa7a-4b69-b2f8-36595c5a25b3

The economic downturn in 1Q 2023 hit badly on the banking sector as the non-performing loan ratio has elevated to 12.9% from that of the previous quarter’s 11.5%. The moratorium offered during the pandemic era ended in Jan 2023 and many sectors are still struggling to recover has put banks in a bad position.

Interest rate reduction by CBSL would take more time to pass through to the economy, as banks will be reluctant to reduce their lending rates and increase the loan and advancers under prevailing conditions.

https://charts.lk/d/649410e547aaa8aa508fe7ea

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Post Fri Jun 23, 2023 1:22 pm by God Father

Banking Sector NPL ratios have reached 12.9%

Actual NPL ratios are far above 12.9% as reported. Banks have window dressed their accounts to show lower NPL levels in order to show more profits. This is one of the key reasons why currently banks are trading at less than 50% of its Net Asset Value (NAV) in the stock market.

NPL ratios of the banks are expected rise to 40% level within next 3 months, if no action is taken by the Central Bank of Sri Lanka (CBSL) to clean up these fictitious recoverable and bad debts from the current assets of these banks. Further all banks should be prudent to understand that it is impossible and impractical to recover 35%-45% p.a interest from businesses and other retail borrowers for the period in which Sri Lanka suffered its worst economic crisis preceded by Covid Pandemic.

Further if Banks are extending interest rate clips and maturity period extensions for the government debt, why not banks also offer the same concessionary terms to the retail and corporate borrowers as well.

Its is time that Central Bank of Sri Lanka interfere in this matter and restructure these banks without allowing these banks to mislead investors and victimize borrowers whilst risking the stability of the entire banking system.

ResearchMan

Post Sun Jun 25, 2023 2:23 pm by ResearchMan

Once the haircut complete, confidence may come, uncertainty may go & investors may do cherry picking. Until then it’s a choppy market. Need to watch the reaction to the haircut first.

ResearchMan

Post Thu Jun 29, 2023 12:10 pm by ResearchMan

Much expected hair cut  has announced. 

Option 1.

30% haircut on dollar-denominated bonds, including international sovereign bonds.


Option 2.

If not agree to the above option, the tenure of the bond will be extended to 15 years with payment of 1.5 % interest.


Option 3

Exchange the dollar bond for rupee securities which will mature in 10 years


I had a position in USD development bonds. Fortunately, for an emergency, I had to cash out those USD bonds long ago. If I had kept them, I would have gone for option 1 as it's the fastest option. 

avatar

Post Fri Jun 30, 2023 11:43 am by God Father

ResearchMan wrote:Much expected hair cut  has announced. 

Option 1.

30% haircut on dollar-denominated bonds, including international sovereign bonds.


Option 2.

If not agree to the above option, the tenure of the bond will be extended to 15 years with payment of 1.5 % interest.


Option 3

Exchange the dollar bond for rupee securities which will mature in 10 years


I had a position in USD development bonds. Fortunately, for an emergency, I had to cash out those USD bonds long ago. If I had kept them, I would have gone for option 1 as it's the fastest option. 

How will its affect the Sri Lanka Development Bonds (SLDB's) held by the Local Banks and Insurance companies?
Local Banks hold significant portion of SLDB.

Banking Sector NPL ratio reach 12.9% Scree332

ResearchMan

Post Sun Jul 02, 2023 2:17 pm by ResearchMan

God Father wrote:
ResearchMan wrote:Much expected hair cut  has announced. 

Option 1.

30% haircut on dollar-denominated bonds, including international sovereign bonds.


Option 2.

If not agree to the above option, the tenure of the bond will be extended to 15 years with payment of 1.5 % interest.


Option 3

Exchange the dollar bond for rupee securities which will mature in 10 years


I had a position in USD development bonds. Fortunately, for an emergency, I had to cash out those USD bonds long ago. If I had kept them, I would have gone for option 1 as it's the fastest option. 

How will its affect the Sri Lanka Development Bonds (SLDB's) held by the Local Banks and Insurance companies?
Local Banks hold significant portion of SLDB.

Banking Sector NPL ratio reach 12.9% Scree332
Good question. Short term TB to be converted to long term bonds. Each and every asset class  have some sort of risks.  Thinking about converting my short term TB into stocks.

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