Sri Lanka's recovery hinges on reform, not just stability: Bankers

IN a recent discussion, a panel of major local bank representatives stated that Sri Lanka's future would be one of economic recovery and growth opportunities, yet, policy inconsistency, external shocks, and over-reliance on narrow sectors could undermine its stability.

- BY DIVYA THOTAWATTE

The banking sector panel discussion, organised by Sri Lankan capital market service provider CT CLSA, titled 'Post Restructuring Resilience: Strengthening Banking Sector Amid Economic Recovery,' featured Commercial Bank of Ceylon Managing Director and CEO Sanath Manatunge, Hatton National Bank Managing Director and CEO Damith Pallewatte, and Sampath Bank Managing Director Ayodhya Iddawela Perera. It was moderated by Asia Frontier Capital Fund Manager Ruchir Desai.

They explained that with stable inflation, improved reserves, and GDP growth surpassing International Monetary Fund (IMF) forecasts, Sri Lanka had progressed much since its economic crisis. However, their consensus was that, still, Sri Lanka's rebound was too fragile for a stable future.

Manatunge said that exceeding the IMF's predictions on Sri Lanka's progress and the current stability of inflation, interest, and exchange rates had given the business sector a platform to make decisions with confidence. "If you look at the economic fundamentals, the external sector is doing well."

He also highlighted progress in fiscal discipline despite challenges, noting that the country had managed to generate a fiscal surplus even though interest rate payments were high. These developments had positively impacted the banking sector, and the resulting resilience had led to impairment reversals, strengthening of profitability, and capital adequacy.

However, political consistency and stability were necessary to maintain this level of growth, despite challenges posed by the global context, Manatunge said.

While acknowledging the positive momentum, Pallewatte also expressed concern, noting: "Interest rates are low. Perhaps it's bottomed out. Exchange rates are probably stronger than what they should be. So there is potential for and the possibility of depreciation."