• Customers panic due to various comments on DDO
• Leading sources confirm banks not worried or feared
• Banks confirm no rush to withdraw money, but inquiries mount

Sri Lanka banks are overloading their Automatic Teller Machines (ATMs) to avoid customer panic due to various comments made on Domestic Debt Optimisation (DDO) and banks are concerned about absorbing losses after DDO rather than stability, The Morning Business learns.

Speaking to us, a senior banker from a leading private bank said that banks are worried not because of the DDO but about some of the comments made by the members of Parliament creating unnecessary fear in the minds of the people.

The bankers said that as a safeguard measure, banks have overloaded ATM machines with cash so that there won't be any cash shortages in the ATM, as people might misinterpret an ATM machine running out of cash as a bank running out of cash.

The banker added that although there is no big panic among customers to withdraw money, people are questioning the banks. 

Central Bank Governor Dr Nandalal Weerasinghe on Sunday (25) assured that no deposit in any bank of the country will be affected by the DDO while State Minister of Finance Ranjith Siyambalapitiya said that domestic debt will not be subjected to a haircut.

“A maturity extension will not have any impact on the deposits as most of the bonds are rolled over at their maturity anyway,” the banker said.

At the end of 2022, the banks held a total of Rs.3.1 trillion Treasury Bonds which is about 35% of the total Treasury Bonds issued by the government. And 60% or Rs.5.2 trillion was held by the non-banking sector.

Speaking to reporters yesterday (27), BOC Employees Union’s General Secretary Ranjan Senanayake said that banks have the ability to absorb any impact from the DDO and therefore it will not have any impact on the bank deposits.

But he said the banks need clarity on how to minimise the impact on banks’ capital adequacy requirement and profitability by the DDO.

As a result of the DDO, it is expected the banks will not be able to record an abnormal profit for the financial year 2023-24 as the massive capital gains from bonds with high yields in an interest rate falling environment, will be cut by the DDO.

Another senior banker said the consensus in the banking sector is a 5-year maturity extension, depending on the type of the bond and a coupon adjustment could be expected from the DDO.

He said that banks are concerned about how to absorb the day-one loss due to derecognition when new bonds are issued in exchange for the old bonds in the DDO.