Banking Risks

June 19, 2012 (LBO) – Sri Lanka’s banking industry faces ‘very high’ economic and credit risk and the industry itself faces “very high risk” in its institutional framework amid regulatory conflicts, a rating agency has said. Standard & Poor’s, a rating agency gave Sri Lanka a score of ‘8’ on a scale where the highest risk in 10, for in a Banking Industry Country Risk Assessment (BICRA), placing the island alongside Nigeria, Tunisia, and Kazakhstan.

“Our economic risk score of ‘8’ for Sri Lanka reflects a “very high risk” assessment of economic resilience and credit risk in the economy, and a “high risk” assessment of economic imbalances, as our criteria define those terms,” S & P said in a statement.

“Our assessment of economic resilience reflects Sri Lanka’s status as a low-income economy, as measured in terms of its per capita GDP, and the inefficiencies in the economy.

“Nevertheless, Sri Lanka’s economic growth prospects have improved following the end of the civil war and subsequent shift in the government’s focus toward boosting the economy and diversifying sources of growth.”

S & P said the banking industry had a risk score of ‘7’ with regulation weaker than international standards, though capital