Annual Report 2010 - Ministry of Finance and Planning

Ministry of Finance and Planning Sri Lanka > Annual Report 2010Finance SectorThe state banking sector whichcomprises of two Licensed CommercialBanks (LCB) and six LicensedSpecialized Banks (LSB) made asignificant contribution to the overalleconomic development through itsnetwork of 1,690 branches and servicedelivery points and a workforce of22,531 in 2010. During the year 2010,State owned banks have opened24 banking outlets in the Northernand Eastern Provinces taking a leadin the post conflict developmentprogrammes in those areas. In theyear 2010, State owned banks alsocontinued providing financial facilitiesintroducing various credit schemes,easing the requirements of collateralon development loans being someof the key development initiativesimplemented.While consolidating their positionas premier financial entities in themarket, state owned banks effectivelycontinued their participation inimplementation of governmentpolicies and directives in respect ofdevelopment of the finance sectorwhich have significant economicbenefits. However, it is noted thatthe investment banking arms ofthe State Banks should acquire thecapacity needed to facilitate SOEsin accessing financing from externalsources through instruments such asdebentures, IPOs, share issuances etc.With a view to channel increasedvolume of long term liquidity to theeconomy the Government has requiredall banks and financial institutions tomaintain a separate investment fundaccount by transferring tax savingsarising from the 2011 Budget Proposalson corporate tax and VAT.The performance of statebanking sector during theyearTotal asset base of state ownedbanks amounting to Rs. 1,758 billionaccounted for nearly 50 percent of thetotal asset base of the entire bankingindustry in 2010 registering a growthof 21.5 percent over the previous year.The total asset base of this sectorconstituted mainly 48 percent ofloans and advances and 36 percent ofinvestments.Stimulated by the low interest regime,credit growth of state banks recordeda significant increase in 2010. Totalloans and advances of the state banksamounted to Rs. 879 billion at the endof 2010, registering a considerable10Chart 4.2 > Movement of Non Performing ofState Owned Banks 2006 - 2009growth of 30.5 percent over the 6.9percent growth in 2009. Two LicensedCommercial Banks i.e Bank of Ceylon(BOC) and People’s Bank (PB)contributed to the 83.1 percent of loansand advances disbursed by the statebanks.The asset quality of state banks whichhas been improving during the last fewyears, continued in 2010 too. The totalnon performing loans of state banksamounted to Rs. 45.8 billion by the endof 2010 registering a significant declineof 9.71 percent over the previous year.Although the, non-performing loanratio has declined to 5.1 percent in2010 from 7.2 percent in 2009, andwas below the 5.3 percent of theindustry average of non performingloans in 2010, it amount of Rs. 45.8billion indicates that the banks haveto embark on a concerted effort torecover these loans which could helpto support Banks’ liquidity positions.The deposit base of the state bankscontinued to increase with the totaldeposit base at Rs. 1,404 billionby the end of the year 2010 andregistering a year on year growth ofDuring the year 2010, the PradeshiyaSanvardhana Bank by amalgamatingsix Regional Development Bankswas established. The process ofamalgamation of Sri Lanka SavingsBank (SLSB) was established toprovide relief to the depositors ofthe defunct Pramuka Savings andNational Development Trust Fund(NDTF) with a view to strengthen thecapital base of SLSB, which was alsoin progress.Non Performing Ratio (%)06.96.675.35.22006 2007 2008 2009 2010205