Current issues in the banking sector

Colombo (News1st): In an article under the heading "Economy in disarray, banks flourishing; can this be true?" on the Daily FT, Prasad Edirisinghe highlights the current issues in the banking sector. The article says it is earlier reported that the growth in bank credit accelerated in August despite the tight credit, money conditions and rising non-performing loans in the banking sector. Sri Lankan banks in total have disbursed new loans worth of Rs. 700 billion during the first eight months of this year, a growth of 10.9%, compared to Rs. 524.9 billion reported for the first eight months of 2017. It further noted that NPAs (Non-Performing Assets) of Non-Banking Financial Industry (NBFI) have been inclining for the last 12 months rapidly and it was a clear indication and an early warning to say that the country’s economy was not doing well. Subsequently, after a couple of days, it is reported non-performing loans (NPLs), a key indicator of banking industry’s asset quality rose to 3.6% by the end of August from 3.4% in July and 2.5% at the end of 2017. The article further notes that during the first eight months, the total non-performing loan volumes rose by 58% or by Rs. 94 billion to Rs. 255 billion. In August alone the non-performing loans grew by 6.7% to Rs. 16 billion compared to the growth of 4.7% or Rs. 11 billion in July. The numbers show that banks have rescheduled some Rs. 155 billion worth loans during the first eight months, so that their non-performing loans look smaller and the balance sheet more appealing. As per the data available for the last year, this is an increase of over close to 70% in rescheduled loans. Hence, the Central Bank of Sri Lanka (CBSL) is said to have estimated the likely NPA ratio at 5.0% by the end of August.