Fitch Ratings expects Sri Lanka’s state banks to continue to report weaker regulatory capital ratios than systemically important private banks, despite significantly higher profitability. This is due mainly to a large portion of state banks’ profits being allocated to a special reserve, which is not included in capital adequacy calculations.

The Central Bank of Sri Lanka has required banks to establish a special reserve to mitigate settlement risks of restructured foreign-currency exposures to the state (CCC+), including both loans and step-up sovereign bonds. This reserve, set at 15% of the outstanding exposure, is effective for six months from end-2024, post which we expect continued regulatory risk mitigation that has an impact on capital.

State banks Bank of Ceylon (BOC; CCC+/AA-(lka)/Stable) and People’s Bank (Sri Lanka) (PB; AA-(lka)/Stable) allocated 72% of their combined profit or 2.2% of combined risk-weighted assets to this special reserve at end-2024. We expect BOC to allocate more in 2025 to meet the 15% requirement. In contrast, systemically important private banks like Commercial Bank of Ceylon PLC (AA-(lka)/Stable) and Hatton National Bank PLC (AA-(lka)/Stable) allocated only 19% and 0.7% of combined profit and risk-weighted assets, respectively.

The special reserve for state banks stems mainly from their foreign currency-denominated loans, formerly to a state-owned entity, at around 15% and 7% of their combined loans and assets, respectively, of which, over two-thirds sits with BOC. These loans were restructured in 2024 as part of the sovereign’s debt-restructuring efforts. Without the reserve, the state banks’ reported capital ratios would have increased by approximately 2pp. Large private banks have a smaller government exposure through international sovereign bonds, representing 3.2% of assets, resulting in a much less significant impact from the special reserve.

Sovereign bonds restructured in December 2024 remain classified as stage 2 assets, with risk weights of 20%.

High Commissioner-designate of Sri Lanka to Canberra, Australia, Yasoja Gunasekera, assumed duties last Tuesday (22).Addressing the staff following the assumption of duties, High Commissioner-designate Gunasekera outlined the priorities of the Government of Sri Lanka and noted the long-standing and friendly relations between Sri Lanka and Australia, as well as the way forward to strengthen bilateral ties between the two nations.

She emphasised the need to intensify the promotion of tourism, trade and investment between the two countries and strengthen people-to-people ties. The High Commissioner-designate also highlighted the importance of ensuring the seamless delivery of consular services. She underscored the well-being of the Sri Lankan community in Australia as a top priority. She also reiterated the importance of collective efforts by the entire Mission in achieving these objectives.

According to the Sri Lankan High Commission in Canberra, a career Sri Lanka Foreign Service Officer with over 29 years of experience, Gunasekera topped the Sri Lanka Foreign Service Batch of 1996 and has served in various capacities at the Ministry of Foreign Affairs, Foreign Employment and Tourism, the most recent being as the Additional Secretary for East Asia; Middle East and Africa. She has served as Ambassador to Jakarta, Indonesia and High Commissioner to Dhaka, Bangladesh and established the Consulate General of Sri Lanka in Guangzhou, China. She also served at Sri Lanka Missions in New Delhi, India and in New York and Washington D.C. in the United States of America.

High Commissioner-designate Gunasekera holds a Master’s degree in Foreign Affairs and Trade from Monash University, Australia, and an LLB Degree in Law from the University of Warwick in the United Kingdom. She is a past pupil of C.M.S. Ladies’ College, Colombo.

President Anura Kumara Disanayake has strongly condemned the recent terrorist attack in Pahalgam, Kashmir, India, which claimed the lives of 26 individuals.

President Disanayake conveyed his condolences to the Indian Prime Minister Shri Narendra Modi over the phone on Friday afternoon (25). The two leaders engaged in a conversation that lasted approximately 15 minutes.

The President reaffirmed Sri Lanka’s unwavering solidarity and brotherhood with the people of India and reiterated Sri Lanka’s firm stance against terrorism in all its forms, regardless of where it occurs in the world.

Extending heartfelt condolences on behalf of the Government and people of Sri Lanka to the victims of the brutal terrorist attack and their families, the President also wished a speedy recovery to those injured. He also said  that Sri Lanka hopes the current tensions will ease soon and that regional peace and stability will be restored swiftly.