Uphill Battle

Despite a recent economic upturn, Sri Lankas somewhat under developed capital market are yet to pose a serious competition to the local banking sector.
The commercial banking sector accounts for 64 percent of the total assets in the Sri Lankan financial system. rn

rnIn terms of size, most of the banks are relatively small and undercapitalised when adjusted to international accounting norms, says Fitch Ratings International, in a detailed report on the Sri Lankan banking system. rn

rnSince disintermediation is low, banks maintain reasonably healthy spreads. However, the industry is beset by structural weaknesses and operating challenges. rn

rnA weak economic environment, mainly due to the longstanding civil conflict, has adversely affected the banking sector, especially over the past decade. rn

rnLending opportunities have been constrained and, in the face of a challenging operating environment and relatively weak risk management systems, asset quality has deteriorated. rn

rnFurthermore, an