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Sri Lanka: Financial Sector Unsoundness Indicators - Q2 of 2023

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God Father

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Senior Manager - Equity Analytics
Senior Manager - Equity Analytics

Banking Sector

Sri Lanka: Financial Sector Unsoundness Indicators - Q2 of 2023 Scree365

The Banking Sector reported Net Interest Income of Rs. 328.6 billion for the Q2 of 2023, recording a decline of 12.8 % YoY whilst Gross Income reported a decline of 27.5% YoY. Increased Corporate taxes yet to have the full affect on the Profit after Tax of the Banking Sector.

Sri Lanka: Financial Sector Unsoundness Indicators - Q2 of 2023 210

Asset growth of the banking sector continued to decline and recorded a contraction of 0.8 per cent Y-o-Y at end Q2 of 2023, mainly due to the contraction of Gross Loans and Receivables.

Sri Lanka: Financial Sector Unsoundness Indicators - Q2 of 2023 110

Foreign Currency Operations (Credit, Investments, Borrowings, and Deposits) of the banking sector (in Rupee terms) contracted on a Y-o-Y basis, mainly due to appreciation of the Sri Lankan Rupee.

Sri Lanka: Financial Sector Unsoundness Indicators - Q2 of 2023 310

Finance Companies Sector
 
LFCs sector recorded a Profit after Tax of Rs. 4.6 billion during the Q2 of 2023. Most of the profitability indicators deteriorated during Q2 of 2023 compared to previous quarter.

Sri Lanka: Financial Sector Unsoundness Indicators - Q2 of 2023 410

Asset quality indicators are deteriorating. Accordingly, Gross Stage 3 Loans to Total Loans and Net Stage 3 Loans to Total Loans increased to 20.3 per cent and 14.3 per cent, respectively, at end Q2 of 2023 when compared to Q2 of 2022.

Sri Lanka: Financial Sector Unsoundness Indicators - Q2 of 2023 510

Download Full Report: https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/publications/financial_soundness_indicators_2023_q2.pdf

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DeepFreakingValue

Post Mon Sep 25, 2023 10:38 pm by DeepFreakingValue

What is the final verdict? Is Sri Lanka Financially sound?

If you ask anyone doing business, they are struggling. Profitable businesses are effected by high Finance cost ,utility cost. Then comes the Tax. There is no breathing space. Whatever you make scooped out by all kind of rates by government.

Next question comes ,is the government doing the right thing with these collected money. Yes and No in my opinion. If you do one right thing there will be two wrong things with corruption and wastage. say central bank governor doing the right thing to keep inflation low and increase the government revenue but the revenue is wasted by the MPs.  Take for example the UN delegation assisted president RW. Ali Sabris son being part of it. Take another example Health Ministry , drug shortage and purchasing substandard drugs. You take for example whatever decision made and there is 1000 ways you do it the wrong way put the entire nation in crisis.

In this way revival of the economy is limping. Businesses are struggling. then repayment of the loan gets delayed. bank non performing loan increases.

On the other hand general public are struggling to tally there income with expenditures. Basically there is no money circulating. Things aggravates and leads to the next stage.

Crime rates increasing and unrest among people. the tip of the ice berg is what we witnessed in Cargills,Keells, Samurdhi Banks. Murders taking place. Women sharing nude photos for money is a headline in todays breaking news in daily mirror. 

How many MPs are willing to forgo there luxuries to meet the revenue shortfall and revive economy. None. How many MPs, former prez want to give back the stolen money from public: None 

Are we recovering ?

Dilip likes this post

DeepFreakingValue

Post Fri Sep 29, 2023 6:55 pm by DeepFreakingValue

Banking Sector expected to take a heavy beating in Oct/Nov.  Reasons.
- Corporate Tax Impact on Earnings
Increased Tax implication (Average Tax of 57%) expected to have full impact in September Quarter. GOSL expected to levy more taxes on banks as per IMF recent review. In this context taxes on TB Gains are likely to be included in the budget.
- NPL Impact on Earnings
Non Performing Loans have to be provided in full as per the CBSL regulations for provisioning, Banking Sector average NPL's have exceeded 12%. No adequate provisions were made since the lifting of the moratorium in December 2022.
- Interest Rate impact on Earnings
Banks have been making its profits mainly from the high interest derived from Treasury Bills which has now fallen below 18% p.a. Further as a result of lower interest rates, Bank interest spreads have affected significantly. Under current circumstances falling interest rates are unlikely to fuel any meaningful increase of credit growth.
- DDO Impact on ISB's owned by Banks 
Banks are likely to realise the full effect of the Domestic Debt Restructuring of the International Sovereign Bonds (ISB's) during the September quarter.
- Impairment due to Domestic Debt Downgrading
Fitch has downgraded Domestic Debt to 'Default' status, which would result in banks having to make impairment of assets.

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