Reducing Sovereign Stresses Will Support Sri Lankan Banks' Credit Profiles: Fitch Ratings

COLOMBO (News 1st); Fitch said, ''Sri Lankan banks' operating environment (OE) assessment and overall credit profiles will be supported by any improvement in the sovereign's credit profile (Long-Term Foreign-Currency IDR: RD, Long-Term Local-Currency IDR: CCC-) following a completed debt restructuring.''

According to Fitch, the sovereign exposure tends to be higher among the large banks, and state-owned enterprise (SOE) exposure is primarily at the two state-owned D-SIBs. 

Fitch expects an improvement in Sri Lanka’s credit profile to alleviate sovereign-related pressures on the banks, which is likely to be credit positive in terms of our financial and non-financial assessments.

Fitch said, ''Sri Lanka is close to completing its foreign-currency debt restructuring. A successful outcome, in line with the proposed framework for local bondholders, would be likely to significantly reduce the challenges faced by banks, improving their financial profiles. Pressures on foreign- and local-currency funding and liquidity have eased considerably due to better external sector flows and the banks' efforts to preserve liquidity. We expect banks to regain access to foreign-currency wholesale funding, following the restoration of the sovereign’s creditworthiness.''