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Banks provisioning for expected losses adequate – CA President

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Jayesinghe hailed the banking sector for taking large steps in 2020 to accurately reflect large expected losses in their figures as early as it was apparent to the institution.

The banking sector has shown lower provisioning in recent interim statements but this is reflective of the improving economic climate and the large and sufficient provisioning that the sector had already taken.

Jayesinghe made these observations on August 3 on the sidelines of the Press Conference for the Annual Report Awards organized by CASL. Jayesinghe acknowledged the complexity of forecasting expected losses given the unprecedented scenario due to COVID-19 but assured public stakeholders that mechanisms for accurate forecasts of expected losses were being utilized in the compilation of Sri Lankan accounts.

The banks have liquidity mismatches wherein their cost of funds (deposits) are on shorter time horizons than their revenue streams (loans). Given the large monetary stimulus injected into the system by the Central Bank, the deposit rates have fallen much quicker than the lending rates.

The slow transmission of monetary policy has resulted in the banking sector posting very high profitability over the recent past.

Jayesinghe hailed the Sri Lanka Accounting Standards and the Accounting Standards Committee for their work in ensuring the quality of reporting in the Sri Lankan financial markets.

He opined that there were adequate avenues of public discourse on the quality of financial accounts and that the general public was able to raise concerns about the figures published by companies.

Jayesinghe said he was unaware of any large-scale misdeeds in the accounts of major entities in the country. Jayesinghe acknowledging the sale of Serendib Hotels to LOLC holdings noted that though private trading of leisure sector assets may reflect larger losses than reflected in the financial statements this was due to the future value of the entities. He also opined that the leisure sector was complex and that entities faced different competitive realities. He confirmed that the banking sector had honestly reflected market realities in their lending exposure to the leisure sector.

Jayesinghe noted that any questions regarding the figures published by public listed entities could raise their concerns with the Colombo Stock Exchange.

Jayesinghe called on CSE CEO Rajeeva Bandaranaike to detail more publicly mechanisms by which public stakeholders can raise their concerns and the way in which the CSE would handle them.

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