Sri Lanka’s banking sector outlook has stabilized, with the Central Bank’s decision to prevent dividend repatriation playing a key role in the sector’s recovery. According to Maninda Wickramasinghe, Managing Director and CEO of Fitch Ratings Lanka Ltd., Sri Lanka can expect a sovereign rating upgrade immediately after the completion of its debt restructuring.
At an event organized by CA Sri Lanka, Wickramasinghe mentioned that Fitch Ratings had previously placed the entire banking sector under a negative outlook during the crisis to signal the stress within the sector. However, one of the positive measures taken by the Central Bank was the restriction on dividend repatriation, which allowed banks to retain capital and make necessary provisions, thus supporting the sector’s recovery.
The banking sector has since revised its portfolio with higher lending rates and stifled credit growth, contributing to improved margins. Wickramasinghe highlighted that despite the challenges, adequate provisioning and capital retention allowed Fitch Ratings to revise the outlook for Sri Lanka’s banking sector to stable after a thorough review of all DC banks and some mid-sized banks.
Wickramasinghe further noted that Sri Lanka is likely to experience a sovereign rating upgrade after completing debt restructuring. He emphasized that sovereigns cannot remain in default once debt restructuring agreements are in place. The specific rating outcome—whether C, CC, or CCC—will depend on decisions made by the government and Central Bank, particularly concerning debt sustainability across both domestic and external debts.
This anticipated upgrade comes as a positive signal for Sri Lanka’s economic recovery and future outlook.