The poor rating of S&P has sent a shock wave in the island country and created a sense of worry among investors, although the apex bank strongly condemned saying that the country banking system is not prone to high risk as indicated in the statement of Standard and Poor’s.
S&P has questioned Sri Lankan banking system alleging that the banking regulations in Sri Lanka are somewhat weaker than international standards.
The Central Bank questioned the S&P rating and said the "statement is factually incorrect, illogically analyzed, and is highly contradictory."
Countering the S&P rating, the bank presented the data of local banking sector, displaying a noticeable improvement in its gross non performing advances ratio from 5.2% in 2007 to 3.8% in 2011.
Further, the central bank said, the liquidity of the local banking system has been well managed with the statutory liquid assets ratio being maintained well above the limit of 20%.
The global rating agency said their assessment of economic imbalance is based on the recent growth of private sector credit although the Central Bank’s recent directive to apply a credit growth ceiling for banks should help to partially curb the risk.
The Central Bank said in a statement, "Thus, the views of Standard and Poor’s that ‘the risk management practices are evolving’ and that ‘the banking regulations in Sri Lanka are somewhat weaker than international standards’ and specifically ‘governance and transparency are weak by global standards’ are baseless."
"Importantly, this statement of Standard and Poor’s is self-contradictory with their contentment on key regulations for Sri Lankan banks."
