• Central Bank estimates Rs. 150 billion sufficient to address capital shortfall
• Improved financial performance of state banks reduces need for additional capital

Sri Lanka’s two state banks will only require about Rs. 150 billion out of the allocated Rs. 450 billion for the capitalisation requirements following the completion of debt restructuring, Central Bank Governor Dr. Nandalal Weerasinghe said.

Speaking at the HSBC Market Outlook for 2024 last Friday (8), he said that according to the latest assessment done by the Central Bank on the two state banks, one-third of the allocated Rs. 450 billion will be sufficient to address any capital shortfall arising from the external debt restructuring.

“But (according) to our latest assessment, we may not need that much (Rs. 450 billion), even one-third is sufficient to address any capital shortfall arising out of the foreign exchange debt restructuring of the two-state banks,” he said.

Through Budget 2024, the previous government allocated Rs. 450 billion from taxpayer money to recapitalise two state-owned banks, the Bank of Ceylon (BOC) and People’s Bank. The International Monetary Fund (IMF) has asked the government to do this to deal with the after-effects of the external debt restructuring.

He added that based on the analysis and the forward-looking dynamic stress testing, the Central Bank is confident that the banking sector, other than the two-state banks, can build their own capital without any capital intrusion from the taxpayer’s money.

He noted that the two-state bank needs some support from the government because they are restructuring their obligations which are medium to long-term loans to Ceylon Petroleum Corporation (CPC) and some of the international sovereign bond exposures.

BOC recorded a profit after tax of Rs. 12.46 billion in the first six months of 2024, which is a 46.5% increase from the previous year’s profits, while People’s Bank recorded a profit-after-tax of Rs. 3.2 billion.