Consolidation View

Feb 11, 2014 (LBO) – Sri Lanka’s plan to consolidate banks, could bring long term benefits and greater system stability, Fitch Ratings said. The consolidation master plan envisaged the creation of bigger banks, with an asset base of over 1,000 million rupees.

“Only one bank met this threshold at end-September 2013,” Fitch Ratings said.

“The government intends these institutions to be able to eventually establish a regional presence and improve overall access to funds.”

There was prospect of mergers of other seven banks that did not meet the threshold. If successfully implanted with Basle III standards, the international standing of banks would be boosted, Fitch said.

Non bank financial institutions, which are about 7 percent of financial system assets are expected to be cut to 20 from the current 58.

“Consolidation benefits for the NBFIs include enhanced capital buffers, the ability to attract cheaper and longer-term funding, and improved cost efficiencies,” Fitch said.

“If realised, these benefits should support the credit profile of the NBFI sector more broadly in light of its lending focus on sub-prime cust