Wary Steps

Feb 27, 2008 (LBO) – The sub-prime loan default crisis in the United States has underlined the value of traditional risk management practices, but countries like Sri Lanka may be at the receiving end, a top banker said. International markets had suddenly turned cautious, with lenders distrusting balance sheets.

“It is not a question of rates,” says Saliya Rajakaruna, chief financial officer of the Bank of Ceylon.

“The problem is with tenors. People are not willing to look beyond 12-months.”

Rajakaruna, a former Citibanker, says a recent incident with Credit-Suisse where it had revealed a three billion dollar hole in its balance sheet just weeks after putting out a clean one had made the problem worse.

“People are not willing to trust balance sheets,” he told a gathering of accounting professionals at the LBR-LBO chief financial officers forum, Tuesday.

Risk premiums were also rising across credit levels in markets, though US yields were falling with rate cuts.

Bubble

He said bankers had chased money when the going was good, especially lending to property but were now discovering that the profits made at the time were ‘false’.

The current sub-prime crisis wa