Central Bank to soon begin diagnostic study on banks to identify cracks in asset quality, capital

1 December 2022 04:06 am - 7 - {{hitsCtrl.values.hits}}

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Two-stage study will cover nine domestic banks including two State lending giants

The Central Bank will soon launch a study to identify the undue cracks in the banking sector asset quality and thereby its spillover effects into banks’ regulatory capital coming from the pandemic, which became more pronounced with the economic crisis.

Yvette Fernando
Pic by Pradeep Pathirana

The Central Bank first announced the study, which it referred to as a ‘diagnostic study’, in early October to ascertain banks’ overall condition in terms of asset quality and capital.

Central Bank officials said the study would enable them to get a clearer picture of the conditions of the sector as it had to provide loan moratoria for about three years, first due to Easter attacks and then as a result of the pandemic.

The prolonged moratoria and other payment relief afforded to borrowers from time-to-time masked the true nature of the asset quality condition of banks until all moratoria came to an end this June.

However, even before the final stretch of payment holidays, the banking sector was met with even bigger crisis having to provide for the foreign currency denominated bonds issued by the government over the years after the government announced a debt standstill in April.

As part of the broader policy package launched from around April, both the Central Bank and the government reversed the monetary and fiscal policies making them bone crushingly tight, taking a severe toll on borrowers which in turn added fresh pressures on the banking sector asset quality.

Further, uncertainty over domestic debt restructuring has also spooked banks as these concerns have added to their existing woes.

As ground works have now been nearly completed, the Central Bank said the study is ready to begin and it will come in two stages.

“It is yet to start. Now we are in the final stages of appointing the reviewers. So, after that as we said we will do the first study with six banks and thereafter with another three,” said Central Bank Deputy Governor Yvette Fernando.

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Comments - 7

Good Luck to you Thursday, 01 December 2022 07:50 AM

Very courageous step, even though too late. A lot of mismanagement of customers' fund can be averted if the Internal control/Internal audit were authorized and held responsible for any lapses. Loans given on the instruction of some political authority, without proper assurance. Result is non-recovery and it ends up as bad debt. Some of the bank staff are also directly involved I suspect. Strengthen the internal audit, take a quick list of non-performing loans, which do not have asset support. How will you minimize pressure from political powers? You know what is meant here! You need a lot of courage; Let us hope you are safe, now that the corrupt regime are without the ability to bite you!

Jude Thursday, 01 December 2022 08:57 AM

Politicians responsible for BIG chunk of Non-performing loans at the two State lending Giants!! Yeah,!!

Jude Thursday, 01 December 2022 08:59 AM

CB partly responsible for country going Belly up!!!

Jude Thursday, 01 December 2022 09:06 AM

Some CB officials gonna reinvent the wheel!!

Jef Thursday, 01 December 2022 10:03 AM

Is it economy cracks or human create cracks always good to know the reason so that prevention measures are taken prior future Repeat of a nother Financial mess in future to distroy the lively hoods millions who are suffering today.if anyone can help reforms recovery transparent format in a strictly manner to operate the entair financial sector is a key factor

Abd Thursday, 01 December 2022 11:38 AM

There is accusation that politically influenced people borrowed massive loans and evading paying them back, considering current situation of the country and unbearable suffering experiencing by masses why CB won’t take action to correct them

Walapone Palangetti Friday, 02 December 2022 01:07 AM

RW will Robb this bank very soon with RK Nayagam and others from Hora Wal Ali group - No more UNP!

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Central Bank to soon begin diagnostic study on banks to identify cracks in asset quality, capital

Comments - 7

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