Banks never required treasury allocated Rs.450bn for capital augmentation - CBSL

Despite the allocation of a massive Rs.450 billion by the government in 2024 for banks to close potential capital shortfalls, the funds were not required as the banks submitted recapitalisation plans instead to show that they were capable of raising capital by themselves, the Central Bank said.

In the lead up to the allocation of the Rs.450 billion from the 2024 budget for the licensed banks, the Central Bank along with the Finance Ministry developed what they call a ‘bank recapitalisation strategy’.

The strategy included the size, timing, instruments, and terms and conditions for government recapitalisation of viable banks which at the time were unable to close their capital shortfalls from private sources.

“However, the need to use such funds did not arise in 2024”, the Central Bank said.

As part of this strategy, 9 banks have submitted recapitalisation plans to the Central Bank and their assessments have also been completed, they said.

“The progress of implementing these recapitalisation plans is monitored by the Central Bank on an ongoing basis,” the Central Bank added.

The banks emerged stronger in their capital levels and the capital adequacy ratios last year as a result of stronger profits they reported.

This was possible from massive reversals of provisions the banks had made expecting large losses from the investments in International Sovereign Bonds as the external debt restructuring came to a satisfactory close in December last year.

The banks also saw some robust growth in their lending activities taking place, specially in the latter part of last year made possible from the declining lending rates and also a broad based recovery seen in the economy.

The licensed commercial banks were seen disbursing a mammoth Rs.789.6 billion in fresh credit with a 10.7 percent growth while the licensed specialised banks have given much lower amount of loans worth Rs.27.9 billion at a 2.5 percent growth.

Both internal capital generation through better performance and also from fresh capital issuances, all banks ended 2024 with sharply higher capital buffers.

Besides the bank recapitalisation strategy, the Central Bank also completed an asset quality review for 9 large banks last year.