Colombo (News1st): Moody’s Investors Service says that the outlook for Sri Lanka’s banking system is negative, as the economy remains weak and asset quality is deteriorating.
Moody’s conclusions are contained in its report titled “Banking System Outlook: Sri Lankan banks, Macroeconomic risks, and deteriorating asset quality drive negative outlook”.
Tengfu Li, a Moody’s Analyst in a statement says the economy will only exhibit a modest rebound as the government’s high debt burden and reliance on foreign borrowings continue to limit public investment and pose the risk of capital outflows. The statement adds that credit growth was very high over the last two years, with the credit multiplier peaking at more than 2.5 times.
A high debt burden and contingent liabilities relating to state-owned enterprises will continue to limit the government’s capacity to support the banks.
Non-Performing Loans in Sri Lanka’s banks rose to 3% of assets in March 2018 from 2.7% a year earlier, though the economy is expected to grow 4.0% in 2018 from 3.7% last year.