Bankers this week welcomed the Central Bank’s (CB) decision to increase the minimum capital requirement of licensed commercial banks (LCBs) in a bid to promote banks that are resilient to internal and external shocks.
“This is a timely decision by the CB which will make the LCBs stronger,” Rajendra Theagarajah, Managing Director HNB told the Business Times.
He said that such moves are necessary for LCBs’ strong balance sheets and when Sri Lanka Accounting & Auditing Standards set in rules pertaining to impairment cost for loans, etc, this will stand in good stead. Aravinda Perera, Executive Director Sampath Bank agreed, saying that healthy capital requirements are needed.
Industry analysts noted that since almost all banks are well above the minimum capital adequacy levels (Tier 1 and Tier 2) their lending won’t be curtailed. “Besides if they want to boost capital they can always go for rights issues because for any reputed commercial bank raising as much capital as they need through rights issues will not be a problem especially due to the favourable market conditions prevailing at present,” an analyst noted. He also said that it is good to insist on higher capital requirements to eliminate unstable undercapitalized shady operators.
He said that most listed banks have comfortably passed this (e.g. NDB and Sampath have Rs 14 billion in minimum capital approximately), which puts the margins out of the picture. “For Pan Asia however this would not bode well. They may have to raise additional capital or look at in-organic growth prospects like a merger,” he added.