June 25, 2014 (LBO) – A Macro Prudential Indicator for Sri Lanka which was downgraded to ‘3’, may be lifted in the future as risks recede, amid slower credit growth, a top Fitch Ratings official said. Mark Young head of Asia Pacific Financial Institutions at Fitch Ratings said with weaker credit growth there was room for an improvement in the indicator.
Fitch put Sri Lanka’s financial system on category ‘3’ when credit growth was high and there was a stock market bubble, amid fears of a spillover over to property.
“Number 3 suggests high potential for system risk,” Young said. “How are indicator works it is driven by three areas: credit growth, potential for asset price bubbles and real exchange rate.
“If two of those three are above trend, we hit number three. Number 3 suggests high potential for system risk.”
A Fitch report released in December 2011 revealed that Fitch had placed Sri Lanka’s financial system on a high-risk category ( Sri Lanka among high risk financial systems: Fitch).