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Domestic Debt Restructuring plan should reduce funding and liquidity risk for non-bank financial institutions – Fitch
Sri Lanka’s proposed government debt restructuring plan should reduce funding and liquidity risk for non-bank financial institutions (NBFIs), Fitch Ratings said, issuing a press release on Friday.
It said that Sri Lankan government’s debt restructuring plan avoids direct impact on the local-currency government debt holdings of NBFIs and commercial banks, easing uncertainty over the entities’ capital, funding, and liquidity profiles.
Nonetheless, the proposal is only one aspect of the sovereign’s debt sustainability plan, and the weak economic environment continues to pose downside risk to the sector, Fitch said.
Sri Lankan NBFIs’ government debt holdings mainly comprise local-currency treasury securities to meet regulatory liquid-asset requirements and for investment returns.
Finance and leasing companies (FLCs) have boosted government debt securities holdings amid a weak economic outlook, lackluster lending opportunities and a preference for stronger liquidity buffers at a time of extreme market uncertainty, the press release said.
However, these holdings are not excessive, at around eight percent of sector assets at end-March 2023 (they were five percent at end-March 2020), but any direct impact from a government restructuring plan would have added to asset quality and earnings pressure arising from Sri Lanka’s difficult economic backdrop.
On Wednesday, Fitch downgraded Sri Lanka’s Long-Term Local-Currency (LTLC) Issuer Default Rating (IDR) to “C” from “CC.”
A day earlier, Fitch said that the Sri Lankan government’s domestic debt restructuring proposal was a significant step in resolving uncertainties in the local banking sector.The Sri Lankan Parliament approved the government’s domestic debt restructuring plan on 01 July.
Given below are excerpts of the press release: “These securities also comprise a larger proportion of banking-sector assets, and any losses arising from a restructuring could have further constrained banks’ capacity and willingness to provide funding to the NBFI sector. Foreign-currency denominated Sri Lanka Development Bonds will be subject to restructuring, but Fitch-rated NBFIs have no exposure to these instruments.
“We also do not expect the latest proposal to prompt a loss of depositor confidence in the banking system that would raise contagion risk for NBFIs’ deposits and bank funding lines. For more analysis on the implications for the banking sector, see Sri Lanka’s Domestic Debt Plan a Significant Step for Resolving Bank Uncertainty.
“Fitch views the funding and liquidity profiles of Sri Lankan NBFIs as closely linked to that of banks, given the NBFIs’ dependence on banks as a funding source. FLCs sourced approximately 73% of total non-deposit funding from other financial institutions as at end-March 2023, of which the bulk would be from banks. Similarly, banks are major funding providers for other NBFI sub-sectors, such as securities firms. FLCs’ credit drivers are also linked to those of banks due to their bank-like business models, common prudential regulator and predominant domestic exposure.
“Sri Lankan NBFIs continue to face significant downside risks beyond those addressed in the recent proposal. The economy contracted by 11.5% in 1Q23, pressuring the FLC sectors’ already-high non-performing loan ratio of 16% as at end-March 2023, while higher funding costs have crimped net interest margins and profitability. We expect economic conditions to remain difficult, particularly for FLCs’ largely sub-prime customer base, despite a modest improvement in inflation, interest rate and exchange rate trends in recent weeks.
“Capital markets are likely to stay volatile despite recent positive moves, keeping the financial prospects of securities firms less predictable in the near term. Any resistance from other government debt holders could also hold back the proposal and raise fresh doubts for the domestic financial system.
The debt announcement and subsequent sovereign rating action do not directly impact Fitch’s national ratings on Sri Lankan NBFIs. The ratings remain on Rating Watch Negative (RWN) due to ongoing operating environment risks, which could weaken NBFIs’ credit profiles relative to other entities on the national ratings scale. We would look to resolve the RWNs upon greater stability in the domestic economy and financial markets, and better visibility on how the economic downturn will affect NBFIs’ franchises and financial profiles. This could require more clarity on the final outcome of the debt restructuring, including on foreign-currency debt, and the impact on the banking and corporate sectors.”
Prime Minister Dr. Harini Amarasuriya, who is currently on an official visit to the United Kingdom, met with members of the Sri Lankan community living in London on Wednesday [20th] and engaged in cordial discussions.
Despite the event being held on a weekday, it was notable that nearly one thousand Sri Lankans representing the Sinhala, Tamil, and Muslim communities attended with great enthusiasm.
Addressing the gathering, Prime Minister Dr. Harini Amarasuriya stated that despite natural disasters and international crises, the present government has succeeded in stabilizing the country’s economy while providing relief to the people. She further noted that Sri Lanka’s political culture has now undergone a positive transformation that is irreversible.
Minister of Women and Child Affairs Saroja Paulraj, addressing the event, stated that a governance system has now been established in the country where all communities are treated equally and the benefits of economic development are shared fairly among all citizens.
Moving away from the traditional method of political gatherings, the event also provided an open platform for members of the Sri Lankan community to directly raise questions and express their views to the Prime Minister and the Minister.
Commenting on the organization of the event, the organizing committee stated that all expenses, including dinner, were borne by the participants themselves. The organizers further remarked that it is unsurprising that opposition groups, accustomed to organizing such events through the misuse of public funds, appear unsettled by this transparent process.
The occasion was attended by the Minister of Women and Child Affairs Saroja Paulraj and Sri Lanka’s High Commissioner to the United Kingdom, Nimal Senadheera.
[Prime Minister’s Media Division]
Prime Minister Dr Harini Amarasuriya currently undertaking an official visit to London, United Kingdom, to participate in the 43rd Commonwealth of Learning (COL) Board of Governors Meeting 2026 held a bilateral meeting with the Yvette Cooper MP, Foreign Secretary of the United Kingdom ON Wednesday [20]. The Prime Minister was accompanied by Sri Lanka’s High Commissioner to the United Kingdom, Nimal Senadheera, along with officials from the Sri Lankan High Commission.
During the meeting, the Prime Minister conveyed Sri Lanka’s appreciation to the United Kingdom for the support extended in the aftermath of Cyclone Ditwa, including ongoing rebuilding and recovery assistance. The Prime Minister also commended the United Kingdom’s support in facilitating increased bilateral trade and exports for Sri Lanka.
The Prime Minister briefed the UK delegation on Sri Lanka’s recent economic developments and policy priorities, the Government’s commitment to advancing human rights and reconciliation, as well as Sri Lanka’s positive growth trajectory.
The two sides also exchanged views on current global geopolitical developments, challenges in the energy sector, and the importance of enhancing regional connectivity and long-term energy security.
Both sides also emphasised the importance of strengthening structured academic mobility frameworks while ensuring fairness, clarity, and integrity within migration systems.
They also reaffirmed their commitment to further strengthening bilateral cooperation between the two countries in areas of mutual interest.
[Prime Minister’s Media Division]
Airbus bribe case:
Colombo Additional Magistrate Lahiru Silva yesterday (20) granted bail to Mohamed Riswan and Mohamed Irshan, who allegedly received money to stand as sureties for the late former SriLankan Airlines CEO, Kapila Chandrasena. They were identified as residents of Sanchi Arachchi Watta, situated next to the Hulftsdorp court complex.
Chandrasena was found dead at his brother-in-law, Aravinda De Silva’s residence, at No. 38, Pedris Road, Kollupitiya, on 8 May.
The Magistrate also granted bail to B. A. Tissa and Perumal Ganesh, who arranged for Riswan and Irshan to stand as sureties for Chandrasena, who is under investigation for allegedly receiving a USD 2 million bribe through his wife to facilitate an Airbus deal. They, too, residents of Sanchi Arachchi Watta, were granted bail on two personal bail of Rs. 500,000 each.
Airbus had to pay USD 4 billion in penalties after admitting it had paid huge bribes to secure contracts in 20 countries. Sri Lanka is among them.
The Magistrate directed that the Grama Niladhari should certify their residence and the relevant certificates submitted to court and to establish the financial status of those who stood as sureties for the four persons.
The court was told that Mohamed Riswan and Mohamed Irshan obtained 17 Grama Niladhari certificates from January till May 2026. On the basis of a statement recorded from Keselwatta Grama Niladhari S. Nilantha Silva police informed court that the first suspect had obtained 10 certificates and the second person seven.
Fourth suspect Ganesh had first met those who stood as sureties, on 05 May, in the court premises and struck the deal. Crime OIC of Keselwatta Police, Sub Inspector K.W.D. Anuruddha, told court that Mohamed Riswan, Mohamed Irshan and B. A. Tissa hadn’t even known who Chandrasena was and were not related to him in anyway, according to investigations. Police requested that the four persons be further remanded.
The Magistrate granted them bail and set the next hearing for 25 June.
Legal sources said that such illegal practices were rampant, and in this particular case the Court Registrar should have been able to see that the sureties were very much unlikely to be relatives of Chandrasena.
By Shamindra Ferdinando
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