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Friday, June 21, 2024

Bankers issue statement on local debt restructuring

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All stakeholders involved in structuring the restoration of Sri Lanka’s Balance of Payments to a sustainable equilibrium must necessarily take a careful look at the resulting outcomes – impact on the banking sector capital and liquidity in a potential Domestic Debt Restructuring (DDR) and minimise the risk to the sector, the Sri Lanka Banks’ Association (Guarantee) Limited said.

In statement, the SLBA said it is necessary to arrive at a consensus with creditors that repayment relief will be afforded to the Government of Sri Lanka (GoSL) by their debt holders to enable repayment to commence within sensible repayment capacity limits that do not result in social strife and political disruption.

“The banks believe that all stakeholders involved in structuring the restoration of Sri Lanka’s Balance of Payments to a sustainable equilibrium must necessarily take a careful look at the resulting outcomes – impact to the banking sector capital and liquidity in a potential Domestic Debt Restructuring (DDR) and minimise the risk to the sector. A further escalation of the situation we are in must be avoided.”

“It must be borne in mind always that the banking sector will have to play an active role in Sri Lanka’s economic revival process. The sector Capital Adequacy Ratios (CAR) and Liquidity Coverage Ratios (LCR) are presently within the regulatory requirements. This position must not be depleted through any action including a debt restructuring that threatens the stability of banks and erodes public confidence.

Banks have asked for clarity on what is meant by “voluntary” debt optimization, is there a non-voluntary element and to whom does this apply (limited to the larger Treasury Bills / Treasury -Bond holders such as the superannuation and pension funds and state-owned Banks), more disclosure on proposed Domestic Debt Optimisation (DDO) and International Sovereign Bond (ISB) re-structuring terms, what is the IMF’s view of Sri Lanka’s economic growth prospects over the duration of the IMF Extended Fund Facility (EFF) and whether proposed DDO would resemble the experience of some other countries who have taken this route before us,” they said.

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