Bank Outlook

Jan 27, 2012 (LBO) – Sri Lanka commercial bank loans may grow 25 percent in 2012 with more lending to small enterprises and retail customers as banks searched for better margins, Fitch Ratings Lanka said. Fitch said in report on Sri Lankan banks better risk management was needed especially for bank who are lending to such sectors. The two largest state banks would continue to dominate the sector.

Though bad loans may grow due to high credit growth, Fitch said it did not expect non performing loans to grow to levels seen during the 2008/2009 balance of payments crisis.

Fitch said banks should increase their capital buffers because export and tourism related business could be hurt by an external slowdown.

“While policy rates have remained steady since January 2011 to support credit growth, Fitch
expects a policy response from the authorities to high credit demand should inflation increase,” the rating agency said.

“However, the agency notes that this may take the form of another increase in the statutory
reserve ratio rather than an increase in policy rates.”

Meanwhile liquidity was going down and net interest margins were shrinking due to rising deposits rates, even if policy ra