Banks’ Association seek clarity from govt on debt restructuring

The Sri Lanka Banks’ Association (SLBA) which represents all the licensed banks in Sri Lanka and underpins all sectors of the economy has requested clarity from the government on Public Debt Restructuring.

In a release, they say that the banks believe that all stakeholders involved in structuring the restoration of Sri Lanka’s Balance of Payments to a sustainable equilibrium must necessarily take a careful look at the resulting outcomes – impact on the banking sector capital and liquidity in a potential Domestic Debt Restructuring (DDR) and minimise the risk to the sector. “A further escalation of the situation we are in must be avoided.,” SLBA states in a statement.

It must be borne in mind always that the banking sector will have to play an active role in Sri Lanka’s economic revival process.

The sector Capital Adequacy Ratios (CAR) and Liquidity Coverage Ratios (LCR) are presently within the regulatory requirements. This position must not be depleted through any action including a debt restructuring that threatens the stability of banks and erodes public confidence.

Banks have asked for clarity on what is meant by “voluntary” debt optimization, is there a non-voluntary element and to whom this applies (limited to the larger Treasury Bills / Treasury -Bond holders such as the superannuation and pension funds and state-owned Banks), more disclosure on proposed Domestic Debt Optimisation (DDO) and International Sovereign Bond (ISB) re-structuring terms, what is the IMF’s view of Sri Lanka’s economic growth prospects throughout the IMF Extended Fund Facility (EFF) and whether proposed DDO would resemble the experience of some other countries who have taken this route before us.

Banks have consistently supported the GoSL and CBSL’s efforts over the years through severe economic hardship that led to both public anxiety and political upheaval reflected in crises especially in recent times with debt repayment moratoriums, rescheduling of viable businesses and necessary recovery arrangements on generally disadvantageous terms predicated by the many incidents of inclement weather, post-Easter Sunday 2019 attacks, COVID-19 pandemic, political, and social unrest.

Credit impairments have hit an all-time high hitherto unseen.

Taking further impairment costs on top of these strains on Capital and Liquidity is not sustainable, especially with the tax deductibility of these necessary costs of being in business being uncertain.

The banks reiterate that maintaining the stability of the banking system is paramount at this time when extremely difficult decisions are being made.