Bank Soundness

June 21, 2012 (LBO) - Sri Lanka's banking sector did not face high risks as assessed by Standard & Poor's, the island's Central Bank said in a detailed response to the rating agency's ranking of Sri Lanka as a high risk economy for banks. The Central Bank said S & P's statement was "is factually incorrect, illogically analysed, and is highly contradictory." S & P placed Sri Lanka on category '8' on a banking sector assessment scale of 1 - 10.

The rating agency said Sri Lanka's banks faced high economic risks and industry risks and regulation was relatively weak, in a June 19 statement.

The Central Bank has made a detailed response to concerns made by S & P.

S & P however also said that Sri Lankan bank capitalization was higher than average. A high capital buffer can absorb unexpected risks.

The regulator said it wished "to assure the public that the Sri Lankan banking system is sound and resilient and is not prone to high risk as indicated in the statement of Standard and Poor’s."

The full statement is reproduced below:

Bank Supervision Department 20 June 2012

Response of the Central Bank of Sri Lanka to the Standard and Poor’s Assessment of the Sri Lankan Banking System

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