Slow Down

July 07, 2009 (LBO) – Sri Lanka’s commercial banks are likely to experience a slowdown in growth and profitability pressures from fresh asset quality problems, Fitch Ratings said.

The rating agency said that it believes that if the policy environment improves, the banks’ balance sheets will be able to absorb the stress over the next 12 – 18 months without their National Ratings being adversely affected.

“Nevertheless, the lack of a visible reversal of macroeconomic trends or improved policy directions by the end of 2009 may warrant rating actions.

“Overall, Fitch forecasts a stable to negative outlook for the ratings of the sector.” Banks are likely to focus on preserving balance sheet quality rather than seeking growth, at a time of global recession and domestic economic slowdown, the rating agency said in a report.

An economic revival with the end of the war is likely to offer growth opportunities only in the medium term, it said.

“While the banking sector was largely shielded from the global toxic asset fallout – due to capital account restrictions and prudential regulations – it will nevertheless bear the brunt of the slowdown in the real economy.”