Banking system stable, says Sri Lanka as $1.4-bn bonds near maturity date

Sri Lankan state-run banks are operating smoothly and the banking system is stable, the island nation’s central bank said on Thursday, in response to concerns raised by an opposition member of parliament.

Thursday’s remarks in parliament came against the backdrop of about $1.4-billion worth of Sri Lanka’s development bonds set to mature this year, more than two-thirds of them before March, with domestic banks holding about 89 per cent, central bank data shows.

Sri Lanka faces an economic crisis as it struggles to pay for essential imports of food and fuel after a 70 per cent drop in foreign exchange reserves since January 2020 led to a currency devaluation and efforts to seek help from global lenders.

“The Ministry of Finance and the Central Bank of Sri Lanka wish to assure the public and all other stakeholders that the banking system is stable,” the central bank said in a statement.

State banks’ operations were being carried out smoothly, contrary to statements otherwise, it added.

Three sources familiar with the matter said the central bank missed a payment on a Sri Lanka Development Bond (SLDB) owed to top state-run lender People’s Bank, which, in turn, failed to honour a swap done with two other commercial banks.

‘Have to eat half’: Lankans feel pain

Thusitha Hadaragama stood at a corner store near his home in Sri Lanka’s Minuwangoda town this week and surveyed groceries to buy for his family of five, including two school-age children, who live on his monthly salary of 50,000 rupees ($181.82). “Prices have gone up again. I will buy a little bit,” said the  driver, who works in  Colombo, 40 kilometres away. “We will have to eat half of what we ate before.”

Across Sri Lanka, families like Hadaragama’s are feeling the growing pain of the country’s worst economic crisis in years, which has driven up prices of essentials and triggered shortages.

Historically weak government finances, badly timed tax cuts and the Covid-19 pandemic, which pummelled the tourism industry and foreign remittances, have wreaked havoc on the economy.

The country is left with foreign reserves of only around $2.31 billion as of February, even as it faces debt payments of about $4 billion through the rest of the year.