Gammanpila claims banks will lose over Rs. 97 b due to DDO

Pivithuru Hela Urumaya leader and MP Udaya Gammanpila yesterday claimed the banking sector will lose over Rs. 97 billion due to the Domestic Debt Optimisation (DDO).

“Although the Government repeatedly mentioned that the DDO has no impact on banks, we found that it was not true when we scrutinised the Cabinet Memorandum on DDO along with the Central Bank’s presentation to the Cabinet,” Gammanpila told the media.  

He said according to Page 3 of the Cabinet Memorandum dated 28 June 2023 presented by the Finance Minister, the outstanding value of Sri Lanka Development Bonds is $ 886 million or Rs. 272 billion.  According to Page 29 of the Presentation of the Central Bank, there will be a capital reduction of 30% of the SLDB which is known as haircut.  Accordingly, there will be a haircut of Rs 81.6 billion.

Gammanpila said 85% of the SLDBs are held by domestic banks.  Hence, the loss to be incurred to the banks because of the haircut is Rs. 69 billion.  Further, a 30% haircut is applicable to FCBU loans which amounts to $ 323 million or Rs. 92 billion. 30% of this amount is Rs. 28 billion.  Accordingly, total loss from both Bonds and FCBU loans are Rs. 97 billion.  

“Additionally, there will be an interest rate reduction of approximately 35%.  We have not calculated the loss associated with interest rate reduction. Hence, definitely, there will be an adverse impact on commercial banks’ liquidity and profitability from the DDO,” Gammanpila added.