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Domestic Debt Restructuring plan should reduce funding and liquidity risk for non-bank financial institutions – Fitch

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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.”



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Navy intercept multi-day fishing trawler carrying 200kg of narcotics

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It has been reported that the Sri Lanka Navy has intercepted a multi-day fishing trawler carrying around 200kg of narcotics suspected to be heroin and crystal methamphetamine (‘Ice’) off the southern coast of the island.

The boat and crew  were to be brought to the Galle Harbour,

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Advisory for Severe Lightning issued to Western, Southern, Sabaragamuwa, Northern and North-western provinces and in Monaragala district today (12)

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Advisory for Severe Lightning issued by the natural hazards early warning center at 01.30 p.m. to 11.30 p.m. on 12 April 2024

Thundershowers accompanied by severe lightning are likely to occur at several places in Western, Southern, Sabaragamuwa, Northern and North-western provinces and in Monaragala district.

There may be temporary localized strong winds during thundershowers.

General public is kindly requested to take adequate precautions to minimize damages caused by lightning activity.

ACTION REQUIRED:

The Department of Meteorology advises that people should:
• Seek shelter, preferably indoors and never under trees.

• Avoid open areas such as paddy fields, tea plantations and open water bodies during thunderstorms.

• Avoid using wired telephones and connected electric appliances during thunderstorms.

• Avoid using open vehicles, such as bicycles, tractors and boats etc.

• Beware of fallen trees and power lines.

• For emergency assistance contact the local disaster management authorities.
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Rear Admiral Princely Liyanage (Retd) sets Serendib World Record climbing Adam’s Peak in record time

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Rear Admiral Princely Liyanage (Retd) of the Sri Lanka Navy achieved a remarkable feat, setting a Serendib World Record for climbing Adam’s Peak (Sri Pada) in an impressive time of 23 hours and 46 minutes, using four different routes  (Nallathanniya, Erathna, Palabaddala, and Malingboda.)  as well as becoming the first person to complete the most ascents of Adam’s Peak within 24 hours.

He began his quest to set this record on 08th April, starting from the Nallathanniya Sri Pada entrance at 3:00 a.m all the way to the peak. His journey continued with climbs up and down the Erathna, Palabaddala, and Malingboda routes, ultimately concluding with the challenging trek from Adam’s Peak to Nallathanniya.

The Serendib World Records Committee officially acknowledged Rear Admiral Princely Liyanage’s (Retd) achievement and awarded him the Serendib World Record certificate on 09th April.

(Navy Media)

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