Sri Lanka’s forex crisis squeezes banks
Banks are grappling with a situation of ‘whom to serve’ with importers breathing down their necks, foreign investors in the stock market demanding to take their money out and parents rushing to get additional approval to send cash to their children studying abroad.
The forex crisis is building up with no foreseeable solution, rendering them wandering about a solution.
Senior officials of at least six banks told the Business Times this week that the situation is worse than it used to be three weeks ago and getting sloppier by the minute with their pipeline in servicing customers building up. “It is an exasperating situation,” a banker said noting that many customers are also getting impatient and exasperated with the situation as they have been turned away.
Foreign investors leaving the Colombo stock market are trying to take their money out with great difficulty, according to most custodian banks. These banks find it difficult to service the foreign investors. “This is a very bad precedent for the future for investors,” a stock market analyst noted. The Securities and Exchange Commission has got complaints from some foreign investors over delays in sending money out.
Similarly, parents with children studying overseas need to get approvals from the Central Bank and the Treasury to send cash to their children. “This wasn’t the case earlier and it is a lot of hassle,” a parent told the Business Times.
The two bigger state banks seem to have the situation under control with their reserves and a few have got funding lines from overseas which they have used to service the letters of credit and other forex needs. But most banks have something like 70 per cent outflows against their 30 percent inflows through remittances etc. The Central Bank has completely ‘washed their hands off’ the situation, a second banker said noting that some customers who could not be serviced by them have shifted to other banks that have a larger pipeline. “We can’t find fault with them as most importers are more than feeling the bite with commercial banks turning them away,” this banker told the Business Times. He added that most small importers are running like ‘headless chicken’ trying to get their cargo cleared while demurrages are piling up at the port. They have resorted to shifting to the larger banks. “So, in effect, we are losing customers by the day,” the second banker said.
A third banker admitted that as of now his bank has a US$70 to 80 million negative position on the import service pipeline. “How can this be tenable without the Central Bank getting involved?”
The bigger banks however said that the situation is not as bad as it was three weeks ago. “The issue is physically there are no dollars. We only have a limited amount which we can use for a day. Many need to stay in line and banks are deciding what and whom dollars should be given to. But it is not out of control as it used to be and it is much more a process now then it used to be,” a senior official from a larger bank said.
Analysts predict the situation will turn for the better at least for a few months once the $ 1.1 billion of the sovereign bond maturity is paid on Tuesday. It is early to say, but they live in hope.