Aug 12, 2013 (LBO) – Sri Lanka’s banks had reasonable capital buffers, higher than Vietnam and India but when adjusted for gold loans and some state exposures, core capital was lower than reported, Fitch Ratings officials said. Sri Lanka has zero risk weight for gold-backed or ‘pawning’ loans, a highly accessible tool that provide over-the-counter credit for businesses and individuals that surrender gold or jewellery.
In Sri Lanka the reported regulatory Tier I capital adequacy was higher than the required 10 percent.
“I would be considerably lower if adjusted for zero-risk weighted assets such as government linked exposures or pawning loans which are zero risk weighted,” Ambreesh Srivastava, head of financial institutions South & South East Asia at Fitch said at a forum in Colombo.
He said the argument that delinquencies in the case of gold-loans in Sri Lanka were low was accepted but it was not zero.
“Also one can understand that the local currency exposures of the Sri Lankan government being risk weighted zero as is done worldwide,” Srivastava said.
“But foreign currency denominated exposure being risk weighted zero can be an issue.”
Sri Lanka was not the only country to have some “idiosyncras