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Sri Lanka Banking Sector
The banking sector in Sri Lanka, which comprises Licensed Commercial Banks (LCBs) and Licenced Specialized banks (LSBs), dominates the financial system and accounts for the highest share of the total assets in the financial system. Banks play a critical role within the Sri Lankan financial system, as they are engaged in provision of liquidity to the entire economy, while transforming the risk characteristics of assets.
Banks also engaged in providing payment services, thereby facilitating all entities to carry out their financial transactions. On the other hand, banks can create vulnerabilities of systemic nature, partly due to a mismatch in maturity of assets and liabilities and their inter connected. Therefore, the soundness of banks is important, as it contributes towards maintaining confidence in the financial system, and any failure may have the potential to impact on activities of all other financial and non-financial entities, and finally the economy.
n terms of the asset base and the magnitude of services provided, the LCBs are the single most important category of financial institutions within the banking sector. LCBs dominate the financial system with the highest market share of the entire financial system's assets. Therefore, the health of Sri Lankan financial system depends to a large extent on the soundness of the LCBs, primarily on the performance and financial strength of the six largest LCBs, generally referred to as the Systemically Important Banks (SIBs).
The systemic importance of the LSB sector is relatively low in comparison to the LCBs, both in terms of size and their impact on the financial system, as it does not play a major intermediary role in the payment cycle.
Licenced Commercial banks and Licenced Specialized banks in Srilanka
Total Assets of the Financial System of Sri Lanka
The banking sector consisted of 25 Licensed Commercial Banks (LCBs), including 12 branches of foreign banks, and seven Licensed Specialised Banks (LSBs) by end of June 2018. 

The total asset base of the banking sector was recorded at Rs. 10.8 t by end of 2Q 2018 compared to Rs. 10.3 t by end 4Q 2017. The total asset increase recorded was 11.1% during the 1H 2018. The report further analyses banks that currently account for total assets of more than Rs. 175 b. 

Risk of Banking Sector

Credit Risk
When lenders offer mortgages, credit cards, or other types of loans, there is a risk that the borrower may not repay the loan. Similarly, if a company offers credit to a customer, there is a risk that the customer may not pay their invoices. Credit risk also describes the risk that a bond issuer may fail to make payment when requested or that an insurance company will be unable to pay a claim.

Market Risk
is the possibility of an investor experiencing losses due to factors that affect the overall performance of the financial markets in which he or she is involved? Market risk, also called "systematic risk," cannot be eliminated through diversification, though it can be hedged against.

Liquidity Risk
Deposit the growth in credit during the 2018, the banking sector operated with the adequate level of liquidity. The domestic Banking unit of LCBs and LSB are required to maintain minimum statutory Liquidity asset ratio of 20 per cent

Resources of Banking Sector
  • Profitability
  • Capital


          


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