"We believe Sri Lanka's plan to consolidate its banks could have positive implications for the industry over the long term with the creation of fewer but larger and stronger players," Standard & Poor's credit analyst Deepali Seth-Chhabria said in a statement.
"But much depends on whether regulations will strengthen the banks and whether their capital, operations, and risk management will improve along with this consolidation."
S&P said consolidation could improve efficiency and ease the supervisory burden but was not "panacea for all the sector's woes."
Significant investment in risk management, infrastructure technology, capital, and human resources were essential, the report said.
".. [B]anks may not get the full benefits of a merger without employee rationalization or redeployment," S&P said.
"Also, the transition could be bu