Sri Lanka’s economic outlook received a mixed forecast from NDB Bank at their recent Investor Earnings Call event on March 20th, 2024. While there are potential challenges, NDB also sees reasons for optimism.
Debt repayments may put pressure on the exchange rate: Niran Mahawatte, Head Treasury at NDB, acknowledged the potential strain on the Sri Lankan rupee as the country resumes debt servicing. Repayments on lines of credit, including those from the Asian Clearing Union, could lead to currency depreciation. However, Mahawatte believes there’s still room for appreciation in the short term.
Wait-and-see approach on interest rates: NDB is anticipating a slight decrease in interest rates soon. This cautious approach reflects their expectation of a 50-100 basis point reduction in rates by the second half of the financial year. This aligns with recent trends – the AWLR has already dipped from 12.9% in December to around 11.3%.
Policy changes spurring economic activity: NDB views recent policy shifts, including the significant reduction in interest rates, as positive signs. This, along with a central bank rate reduction of 650 basis points, has already stimulated some lending activity. This suggests potential growth in credit as the economy picks up steam.
Import credit demand signals revival: NDB observed a rise in import credit demand in January, followed by a plateau in February and March. This trend indicates a potential revival in economic activity, suggesting increased business confidence and a return to pre-crisis import levels.
NDB sees “green shoots” of recovery: Despite a contraction in the industry loan book, NDB remains optimistic. They see signs of economic recovery, with an environment conducive to growth in consumer spending. The bank’s focus on credit quality and strategic management of impairments further strengthens their position.
NDB plans to expand loan book: Seizing the opportunity presented by favorable economic conditions, NDB CEO Kelum Edirisinghe announced plans to expand the bank’s loan book. He emphasized their optimism about a recovering economy and the anticipated dip in interest rates, both of which could fuel consumer spending.
Legal framework critical for banking sector: Edirisinghe stressed the importance of a legal framework that protects both shareholders and depositors. He believes removing the ability to take legal action against individual directors (parate action) would be detrimental to the banking sector’s stability.
Overall, NDB’s outlook for Sri Lanka’s economy is one of cautious optimism. While challenges exist, the bank sees positive signs and is strategically positioned to capitalize on potential growth.