Sri Lanka receives 10 applications for casinos: Minister

ECONOMYNEXT – Sri Lanka’s banks should be protected from the full impact of a haircut on international government bonds as they are crucial to growth and both fairness and equity should be taken into account when comparing with foreign investors, top bankers said.

Sri Lanka’s banks hold about 1.25 billion rupees of about $1.8 billion in government bonds held by residents, bankers said.

Total government bonds outstanding are approximately $12.55 billion, with the majority held by international bondholders. They want all owners to be treated equally.

stability

“So we are talking about a level playing field and we fully appreciate that and respect the agreements in place,” Hatton National Bank CEO Jonathan Alles said in a discussion hosted by Sri Lanka’s Echelon Magazine.

“But just think of the international creditor who is considering a restructured bond after the haircut.

“They rely on the economy to get going in order to maintain their repayments and coupons on the new bond and the value of the new bond.

“If the biggest catalyst that is going to drive this economy, which is the banking sector, is not stable, is not strong and is not able to support this, then they are not really helping themselves.”

“Again, you need to get a complete picture when making this calculation. I think you can’t just take a silo like in an ISB and say level playing field, everyone assumes the same thing.

“We can talk about Covid… but fundamentally it is an economic crisis. And it is an economic crisis driven by bad government, bad governance and bad leadership.”

Sri Lanka’s banks have level 3 bad loans worth 1.5 trillion rupees due to the economic crisis, with about 13 percent of assets non-performing.

The banks have also made provisions of up to around 50 percent for government bond holdings.

Pay in Rupees

Bankers say a model similar to the treatment of Sri Lanka Development Bonds should be considered.

SLDBs were paid in rupees even though banks had credit lines and deposits in US dollars. The banks then exchanged the rupees for dollars in the market.
Banks were exempted from restructuring rupee bonds.

“Pretty much yes, but equality is something different. Check sentence.

Biggest challenge

Bankers say treatment should be fair but not necessarily equal because there are precedents in other countries.

“…The restructuring of ISB is the industry’s biggest short- to medium-term issue,” said Sanath Manatunge, chief executive officer of the Commercial Bank of Ceylon.

“We have gone through the SLDB restructuring and we are very positive. Restructuring the ISB is the big hurdle we have to overcome. We gave loans to the government; We’re going to get our hair cut.

“These impacts should be minimized for the sector, not from a shareholder perspective. If we want to support the economy, the banks should keep this money that is given to the government.”

If a bank loses one billion rupees of capital, the ability to lend based on capital requirements decreases by about 10 billion rupees.

“Then you cannot support the economy and also as a sector, the banking sector is not the most valuable stock,” Manatunge said.

“All banks are around 0.5 to 0.6 of book value. This means investors are cautious.

“If the local banks can get some of this money in rupees like SLDBs, it will instill a lot of confidence in the sector. Let’s say the bank goes to the market to raise capital. We have a story to tell that the regulator has taken care of us, we are on a growth path, supported with capital.

There is also uncertainty over taxation and how the matter will be handled, he said.

Trust of depositors

Banks claim to have invested in government securities to ensure safe investment of their deposits. ISBs were also eligible for the regulatory liquidity ratio.

“For them, it’s the informed investment decision they’ve made,” says Alles. “It is a liquidity ratio that we need to keep 20 percent of our assets in liquid form. And this is one of the liquid instruments.

“So they parked it in ISBs and SLDBs. And we give this to give our depositors confidence – by the way, the deposits are safe because we invest more than a percentage there.

“And what kind of trust do we give our depositors if there is a haircut?

Sri Lanka suffers from chronic external instability and devaluation due to an anchor conflict monetary system where the key interest rate is precisely targeted without a floating exchange rate and monetary policy errors are invariably offset by devaluation (a soft peg or floating exchange rate).

Critics say exchange controls are also in place due to the poor monetary regime and the authorities’ reluctance or lack of knowledge to move to a single-anchor, low-inflation regime that allows free movement of capital and external stability.

Foreign currency deposits reduce the incentive for Sri Lankans to deposit savings outside the country and breach exchange controls to protect their savings from inflationary monetary policy, analysts say.

Sri Lanka defaulted on peacetime payments in 2022 after implementing the most aggressive macroeconomic policies with interest rate cuts and tax cuts to target “potential production”. (Colombo/January 14, 2024)


Continue reading

Source link