The profitability of the banking sector was hampered during the last couple of years primarily by the economic slowdown, increase in taxes and implementation of Basel III requirements and adoption of SLFRS 9.
“However now we are witnessing an upward curve in the banking sector.”
Post an era of fiscal tightening and country is once again on track towards building a period of robust growth. “Pick up in economic activities and confidence will provide fertile bedrock for the growth in private credit, thereby positively affecting the banking sector.”
Previous regulation on Basel III capped the credit growth by imposing capital requirements on banks. However, recently CBSL introduced multi-factor model in determining DSIBs while providing more leeway with regard to capital requirements of banks.
Moreover, cost to income(C/I) is expected to be a critical factor in the future in improving the profitability of banks and many banks have already started to embrace the digital technology over brick and mortar methods. Banks in the industry started to significantly invest in the digital initiatives to fortify digital leadership.
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