People’s Bank chief dismisses Fitch concerns, points to strong capital position

People’s Bank CEO/GM Clive Fonseka has strongly refuted concerns raised by Fitch Ratings regarding capital vulnerabilities in the state-owned banks, maintaining that his institution remains financially robust despite the recent challenges.

- BY INDIKA SAKALASOORIYA

Speaking to Mirror Business in an exclusive interview, Fonseka said the narrative of systemic fragility within the state banking sector does not reflect the actual ground situation and emphasised that even after allocating Rs.25 billion as a special reserve, People’s Bank continues to maintain healthy capital levels. He noted that despite the provisioning, the bank retains a capital buffer of about 3 percent above the minimum regulatory requirement, describing it as a significant margin of safety. His remarks come in response to Fitch's recent assessment highlighting potential capital weaknesses in Sri Lanka's state banking sector, despite significantly higher profitability, due to a large share of profits being allocated to a special reserve that is excluded from capital adequacy calculations. Following is an excerpt from the interview.

Were you surprised by the statement from the rating agency or was it something you had already anticipated?

It wasn’t the overall statement that surprised us — it was the broad generalisation in Fitch’s commentary that caught us off guard. In the case of People’s Bank, we had fully complied with the Monetary Board’s directive to allocate and lock-in 15 percent of our foreign currency exposure to state enterprises, mainly to Ceylon Petroleum Corporation (CPC), which were later transferred to the Finance Ministry and restructured.

We had already provisioned the full amount — Rs.25 billion — into a special reserve. Even after that, as of December 31, 2024, our Tier 1 Capital Adequacy Ratio stood at 10.9 percent and our Total Capital Adequacy Ratio at 16.5 percent.

This clearly provides us with a capital cushion of around 3 percent above the minimum regulatory requirement.