Sri Lanka’s large banks’ outlook worsens amidst new COVID surge

The new COVID surge that began in April may hinder GDP recovery.

Sri Lanka’s large banks could expect to see tough times ahead as the operating environment deteriorates amidst a renewed surge in COVID-19 infections, reports Fitch Ratings.

Large banks' financial performance since the pandemic’s onset has been better than expected, supported by relief and forbearance, although there are significant risks to the banks’ standalone credit profiles, the ratings agency said. With the country’s GDP expected to recover in 2021 and 2022 compared to 2020’s contraction, Sri Lanka’s largest lenders are forecasted to lodge better performance at least in the near term.

However, Sri Lanka has recently experienced a surge in COVID-19 infections beginning April 2021, and the disruption to domestic economic activity may hinder the recovery of real GDP, Fitch warned.

“The deteriorating operating environment has impacted, in particular, the large banks’ risk and financial profiles, although their franchises remain intact despite the pandemic,” Fitch said, adding that this has put pressure on the ratings of Sri Lankan banks under their watch.