Domino Effect

Dec 08, 2008 (LBO) – The effects of a payment halt on derivatives by a state-run oil distributor is spreading far into Sri Lanka’s banking sector, hurting capital, interbank transaction integrity and international relationships, market participants say. Two weeks ago, CPC chairman Ashantha de Mel said outstanding exposures of Citibank to CPC were 400,000 barrels, Standard Chartered 300,000 and Commercial Bank 20,000 barrels.

Estimates of the total marked-to-market exposure to banks’ counterparties abroad have been estimated at between 400 to 700 million US dollars, to the duration of the contracts which run till next year.

Ratings

Meanwhile another crisis is brewing.

Earlier Commercial Bank shares fell after it disclosed to the Stock Exchange that it owed a foreign counterparty 982 million rupees (8.9 million dollars) on a 20,000 barrel contract. The bank however has capital to cover the possible loss.

The People’s Bank had two contracts of 50,000 barrels each with CPC, with one contract going through Commercial Bank. Analysts say exposure to People’s Bank could be around 1.5 billion rupees or slightly higher.

Both Commercial Bank and People’s Bank are rated by Fitch. Standard Chartered and Citbank local branches al