Sri Lanka has managed to maintain inflows of around $ 1-2 billion over the last few years.

Business Bureau, Gulf Today

The Sri Lanka’s economic growth which has seen a slowdown in recent years due to external factors is expected to improve as a result of easing of monetary policy by the Central Bank as well as fiscal expansion. IMF has projected real GDP growth to strengthen to 3.5% in 2020.

Alpen Capital (ME) Limited, Dubai-headquartered investment banking advisory firm, announced the publication of its latest report titled “Sri Lankan Banking and NBFI Sector”. This report provides a comprehensive overview of the Sri Lankan Banking and NBFI sectors, highlighting the strengths, opportunities and challenges for a diverse group of investors (investment funds, corporate institutions, etc.) looking for investment opportunities in Sri Lanka. It also profiles some of the key firms within these sectors.

“Alpen Capital forayed into Sri Lanka in 2015 and since then witnessed remarkable success, in both of its equity and debt advisory services, arranging more than USD 500M of bilateral loans, club loans and syndications for banks and finance companies as well as advising clients on regional cross border mergers and acquisitions. We continue to believe in the tremendous growth potential of the country and anticipate immense opportunities for investors,” said Rohit Walia, Executive Chairman of Alpen Capital.

“The Central Bank of Sri Lanka is closely monitoring the Banking and NBFI sector by adopting international regulatory standards, which has increased investors’ confidence in these sectors. Highly professional individuals who manage the Banks and top tier NBFIs have ably led the sector though challenging times and successfully fulfilled the expectations of the investors. We expect the outlook of these sectors to improve and through this report intend to showcase them,” said Mr. Dilip Samanthilaka, Senior Director of Alpen Capital.

External vulnerabilities in meeting large external debt service payments have been foremost among Sri Lanka’s economic challenges. This was also highlighted by Sri Lanka’s sovereign credit rating downgrade from B+ to B by Fitch Ratings in December 2018 and a subsequent revision of the outlook from stable to negative in December 2019. Despite this downgrade, Sri Lanka has retained the ability to raise sovereign bonds and raised them twice in 2019, with both bond issuances being healthily oversubscribed.

Sri Lanka received Foreign Direct Investment (FDI) inflows of around US$ 2.1bn in 2018 and has managed to maintain inflows of around US$ 1-2bn over the last few years. FDI inflows have been centered on investments into export industries and large-scale infrastructure projects.

The country has retained stable fundamentals despite facing economic challenges in the recent past. Its economic growth is driven by an increasingly important services sector, which has helped it achieve relatively high levels of GDP per capita. The Colombo Stock Exchange (CSE), together with the Securities & Exchange Commission (SEC) is working towards strengthening the capital market, being aware of the vast opportunities that can be captured by attracting both domestic and international investments.

Licensed Commercial Banks (LCBs), which represent a major component of the banking system, had a total asset base of US$ 58bn and asset share of 87.6% as at September 2019. The remaining component of the banking sector, Licensed Specialized Banks (LSBs), mainly comprise of regional development and savings banks. LCBs and LSBs are predominately funded by customer deposits, with deposits accounting for over 84% of the funding mix. However, the low-cost fund base of the banks, measured by the CASA ratio, has been declining over the years.

In 2019, Year-on-Year (YoY) growth in credit to the private sector decelerated significantly to 4.4% from 16.2% in the previous year. However, lending rates at financial institutions remained at an elevated level over the period. To tackle this, the CBSL has taken action by reducing policy rates and imposing a cap on bank lending rates in September 2019. As a result of CBSL’s action as well as the government stimulus measures, the CBSL expects credit growth to gradually recover in 2020.