Capital Short

Jan 31, 2008 (LBO) – Though Sri Lanka’s policymakers and borrowers are expecting banks to give loans, cut interest rates and extend repayment periods, the sector’s ability to bailout the broader economy is limited, officials said. Sri Lanka’s businesses were feeling the impact of local and external downturn from last year.

Baited Breath

“Even though in 2008 the banks did begin to feel the pain of that, my view is that the banks have still not got the brunt of it,” chief executive of DFCCBank, Nihal Fonseka said at a forum organized by the Society of Certified Management Accountants.

“I think we will get it in 2009.”

Fonseka says there are expectations that the banks should help other sectors which are facing difficulties. Already lifelines were being extended to various sectors.

“I’m not saying that other industries are not requiring support, but in other countries such support has been extended by the governments of those countries.

“Unfortunately by this time around I don’t think the banks have the capacity to do so.”

Though Sri Lanka’s banks are adequately capitalized, the profitability of the entire sector is falling and bad loan provisions are rising.

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