Press conference held to discuss risks to state banks from local debt restructuring and postponed local government elections in Sri Lanka

Singularity Sri Lanka hosted a press conference on February 15, 2023, to highlight the risks facing state banks if local debt is restructured and to discuss the government’s postponement of local government elections.

Addressing the media, Mr. Manju Nishanka, leader of the Global Sri Lankan Congress, pointed out that the Sri Lankan government has failed to agree on even the initial conditions set by the IMF with its bilateral creditors. As a result, it is unlikely that the IMF loan installment due in March will be received. Most of the local loans taken by the government have been obtained from three state banks: the People’s Bank of Ceylon, the National Savings Bank, and the EPF/ETF fund. Mr. Nishanka revealed that 41% of Bank of Ceylon’s assets and 60% of People’s Bank’s assets are loans to the government, exposing the depositors’ money to high levels of risk.

Regarding debt restructuring, Mr. Nishanka explained that there are only two methods: extending the repayment period or reducing the interest rate and premium, or writing off a certain amount of the loan as bad debt. However, following either of these methods could result in a significant shock to Sri Lanka’s banking industry due to the weak financial management of the current government.

The press conference shed light on the potential risks of restructuring local debt and the need for the government to prioritize the interests of state banks and their depositors.