Risky Business

According to the study, the local banking sector is saddled with a 19 percent NPL ratio and only few banks record a NPL ratio below 10 percent. Cost to income ratio endash a key efficiency indicator endash is also recorded well above 80 percent for some banks.

rnrnIn addition, findings reveal a heavy reliance on collateral for lending, decision-making and low profitability as significant weaknesses among banks operating in Sri Lanka.

rnrnA large credit risk exposure, despite low level of credit to the private sector and significant exposure to interest rate risk, have been identified as the main vulnerabilities in the banking sector.

rnrnIMF team has also noted the large operational risk affecting the sector, which is aggravated by trade union actions.

rnrnA stress test has also been carried out to determine the impact on Capital Adequacy Requirement (CAR) of the banks, by adjusting the capital for various factors including writing down collaterals difficult to realize and overvaluation of governmen