Bank Health

Feb 10, 2010 (LBO) - Sri Lanka's banks have been hit by bad loans in 2009, but have maintained required capital levels and asset quality is improving with the help of low inflation and interest rates, a report by the regulator said. Sri Lanka's licensed commercial banks have maintained Tier one capital at 11.4 percent by September 2009, up from 11.1 percent in 2008, a financial stability report issued by the Central Bank said.

Liquid assets have also increased to 32.

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8 percent from 25.7 percent as banks bought into government securities in 2009. Government securities have no risk weighting.

But bad loans among commercial banks have risen to 8.6 percent of total loans by September 2009 from 6.0 percent in 2008. Net bad loans have risen steeply to 30.2 percent of capital funds from 16.

7 percent in 2008.

"The banking sector remained stable and resilient despite the challenges caused by the global financial crisis and the failure of some domestic unauthorised institutions engaged in finance related businesses," the report said.

"The improvement in loan repayment ability of bank customers due to the considerable reduction in interest rates during the past few months and the revival in economic activity, both globally