Time To Focus Attention On Risks Of Banks In Sri Lanka

By Chandra Jayaratne -May 31, 2013 

Chandra Jayaratne

Open letter to business leaders

It will be wise and timely if business leaders (and also depositors) start paying attention to the emerging potential risks across the banking sector. They should collectively engage in critical risk reviews, supported by economists, banking and finance experts and business sector leaders.

The Economic Intelligence Units of the chambers should initiate the process with a position paper to be reviewed by the chamber committees. These reviews should lead to the identification of medium term (one to three year) risks of banks and the finance sector and the likely consequential impact on the business sector and stakeholders of banks, especially depositors.
The risk mitigation strategies, strategic collective action, advocacy and communication strategies should also be developed and implemented as appropriate, in the interest of the nation, the business sector and the people.

Commercial banks and even leasing companies have initiated processes towards borrowing in foreign currency. Some of these borrowings are with State facilitation and the currency risks are swapped to the account of the State. Others may be borrowing in foreign currency, with the currency risk entirely to the account of the bank concerned.

The lack of transparency and clarity surrounding these transactions increases the associated risks. Some of these borrowings are significant in comparison with the balance sheet size of the banks concerned. Even smaller banks and leasing companies appear to have begun exercising the option of lower cost borrowings, with currency risks spared or even carrying the currency risks to its account.

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