Prime Trend

Dec 13, 2010 (LBO) – Bad loans at Sri Lanka’s commercial banks are falling, and profits are rising and credit growth is picking up as the economy recovers and a leaves behind the effects of a burst bubble, a report by the island’s banking regulator shows. Pre-tax profits had risen to 35 billion rupees at the 22 commercial banks by June 2010 up 48 percent from 23.8 billion rupees a year earlier.

Profits from fund based activities had increased 14.0 percent by fee based income had grown by just 3.0 percent with foreign exchange income falling 7.0 percent.

Sri Lanka’s rupee appreciated against the US dollar and a tighter peg also reduced volatility, since a balance of payment crisis ended in April 2009.

Total capital adequacy ratio at commercial banks fell to 15.2 percent by June 2010, from 15.4 percent in 2009, after climbing from 13.8 percent in 2008.

Capital was well above the required levels.

In 2009 banks stopped lending to risky
private borrowers and started financing the government deficit which expanded to 10 percent of gross domestic product.

Gild-edged government securities free risk-weighted capital, allowing capital adequacy to rise even as bad loans increase.

Up to June credit has expanded 122 billion rupe