• Fitch’s Maninda Wickramasinghe says dividend repatriation stabilised banking sector
• Says sovereign cannot be kept in ‘default’ once restructuring deal struck

Sri Lanka’s banking sector outlook is stable as the prevention of repatriating dividends by the Central Bank helps the banking sector to come out of the crisis while Sri Lanka can expect a sovereign rating upgrade soon after the completion of debt restructuring, Fitch Ratings Lanka Ltd. Managing Director and CEO Maninda Wickramasinghe said.

Speaking at an event organised by CA Sri Lanka, he said that they did put the entire banking sector on a negative outlook during the crisis period as a signal to the market that the entire sector was under stress.

However, he said collectively one of the good things that the Central Bank did was prevent repatriating dividends while the banks were encouraged to look at making specific provisions and general provisions which essentially meant retention of capital.

He added that the bank portfolio got revised in terms of lending rates going up and credit growth stifled.

“Though banks booked pretty hefty margins, it also meant that by essentially not remitting your capital, there was retention and provisioning was adequate,” he said.

He said as a result those Fitch ratings took the banking sector outlook out to stable after reviewing all the DC bans and some of the midsize banks.

Further, Wickramasinghe said that immediately following the debt restructuring there would be a rating upgrade as sovereigns cannot be kept in default when they have agreed to restructure debt.

But he said that the question of whether they go to C, CC or CCC rating is up to the government and the central bank.

He said the rating agency will have to look at the debt sustainability of both domestic and external debt rather than just one type of debt.