Bank insurance

Sri Lanka has no plans to restructure bank, insurance or pension fund debt: minister

ECONOMYNEXT – Sri Lanka’s stock, rupee and bond markets barely moved according to a statement by Minister of State Shehan Semasinghe who said the government had not yet decided to restructure local debts.

Markets were expecting the worst for local loans as part of Sri Lanka’s debt restructuring process, including a discount, both on yield, and an extension of maturity. Financial analysts have warned of a collapse of the banking sector in the country.

Some analysts say people could protest in the streets if their pension funds are cut as part of local debt restructuring.

“The government has not taken any decision to restructure the domestic debt as negotiations on the treatment of the external debt are still under discussion with external bilateral and commercial creditors,” State Minister Semasinghe said. tweeted Thursday (17).

“GOSL (Government of Sri Lanka) does not intend to impose any treatment on domestic debt that would negatively impact the domestic banking sector, insurance sector and pension funds. There is no basis for the recently reported speculation on domestic debt restructuring.

Analysts say local banks are concerned about possible local debt restructuring, as many have invested most of their deposits in government securities.

Speculation has already led to prime traders demanding a return of more than 33% on lending through government securities due to debt restructuring speculation, according to market traders.

“It also forced the central bank to print more money to finance the government at lower interest rates,” a forex trader told EconomyNext.

“At one point the government said that all creditors would be treated equally without specifying whether they were foreign creditors only. Now this minister says domestic creditors will be treated differently. The market does not trust any of these statements.

After the minister’s statement, the stock index fell as turnover improved, stockbrokers said. However, the rupee and bond markets shrugged off the statement as they believe local debt restructuring is inevitable, dealers said.

“The market speculates on a haircut. How can only this minister say such a thing? Why didn’t President Ranil Wickremesinghe say this in last week’s budget and why are the central bank governor and finance ministry secretary silent about it? said a forex trader, asking not to be named.

“When there is uncertainty, negative sentiment will prevail”

Local analysts said the market needed time to adjust if it was decided to go for a local debt restructuring.

“The ambiguity of the debt restructuring proposals is weighing on the market and the economy,” said Danushka Samarasinghe, Chief Executive Officer/Director of Nation Lanka Equities (Pvt) Ltd. (Colombo/Nov17/2022)

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