State Banking

June 23, 2011 (LBO) – Sri Lanka’s state run Lankaputhra Development Bank’s bad loans had increased to 66.4 percent of gross loans from 55.9 percent a year earlier, though the bank had become more selective in new lending, a finance ministry report said. It had received capital injections from people’s tax money earlier. The bank had a ‘A’ rating and capital adequacy of 80 percent, and an ‘A’ rating as a state backed bank. Lankaputhra Development Bank was set up in 2006 to finance small and medium enterprises despite the existence of other banks with large branch networks. The bank promptly started acquiring bad loans.

It also had to take-over a bad loan from another newly created SME Bank also set up ostensibly for the same purpose and also started acquiring bad loans. Both banks were set up to give effect to election promises

The report said Lankaputhra had “adopted a selective approach in expanding its loan portfolio.”

It said total asset did not grow as its loan book fell by 13.7 percent. Total assets fell to 6.62 billion rupees from 6.85 billion rupees a year earlier.

In absolute terms bad loans went up only to 1,587 million rupees from 1,579 million rupees.

The bank had reported after-tax profits of 50 million rupees for 2