Commercial banks reduce negative foreign asset position in 2022

ECONOMYNEXT – Sri Lanka’s commercial banks have reduced their negative foreign asset position over the past year by over 500 million US dollars since rates were hike in April 2022, official data show.

Commercial banks had a negative 732 million US dollar foreign asset (borrowed abroad and gave credit domestically) position in April 2022 which has fallen to a negative 230 million US dollars by November 2022.

At offshore banking units, negative foreing assets (NFA) turned positive in May and was plus by 292.9 million US dollars by November 2022, central bank data show.At domestic banking units, NFA is still negative by 523 million US dollars.

Sri Lanka’s commercial banks had borrowed abroad, especially to buy Sri Lanka Development Bonds (SLDBs) in recent years as forex shortages increased under flexible inflation targeting, giving credit beyond foreign currency deposits in their books.

Banks also lent to Ceylon Petroleum Corporation as forex shortages emerged from flexible inflation targeting.The government started to have difficulties in repaying SLDBs several months before default was declared in April 2022.

SLDBs were repaid through several methods, including offsetting against surrender requirements. Banks have also been allowed to run up net open positions to reduce the forex exposure.