CBSL’s Bank Consolidation Plan Is Credit-Positive, Says Fitch

COLOMBO (News 1st); Fitch Ratings says the Central Bank of Sri Lanka’s (CBSL) reintroduction of a consolidation framework for the banking sector is broadly positive for sector credit profiles. 

According to Fitch, consolidation should strengthen franchises, create better-capitalised banks and support compliance with tightening single-borrower limits, particularly as higher post-merger capital can enable banks to take larger exposures within revised regulatory caps.

Fitch also expects the initiative to support market confidence if executed credibly, while noting that outcomes will depend on the quality of merger partners, the scale of required recapitalisation and the availability of regulatory incentives for acquiring banks.

CBSL previously outlined a Master Plan for the Consolidation of the Financial Sector in early 2014, covering banks and finance and leasing companies. The renewed focus on banks follows earlier efforts to encourage consolidation through higher minimum capital requirements. Most banks met those requirements via retained earnings and/or capital injections, aided by extended regulatory timelines, limiting merger-driven restructuring.