Fitch Ratings believes Sri Lanka’s largest banks are the most susceptible to heightened sovereign risk due to their greater exposure to foreign-currency-denominated government securities and, in some cases, weak capital positions.

This exposure for Fitchrated banks stood at around 6.4% of total assets and 78% of total equity at end-2020. For every 10% reduction in the value of foreign-currency-denominated government securities, we calculate that the large banks’ common equity Tier 1 (CET1) ratios would have dropped by 18-219bp as at end-2020.

Some smaller banks may appear to be relatively unscathed by such exposure, but they would not be immune to any spillover effects of sovereign stress.

Overall, Fitch-rated Sri Lankan banks had about one-third of their combined assets exposed to the central government as at end2020, increasing the risk of heightened sovereign stress causing significant deterioration in their financial condition.

Fitch expects bank ratings to remain constrained by, and closely linked to, its assessment of the Sri Lanka sovereign, which has a ‘CCC’ Long-Term Local-Currency Issuer Default Rating (IDR), due to the strong correlation between the sovereign and bank credit profiles.

This stems from the banks’ significant direct exposure to the sovereign, largely via their government-security holdings as well as to the wider domestic economy and local financial markets through their Sri Lanka-centric operations.

Under Fitch Rating’s Bank Rating Criteria, a bank can only be rated above the sovereign if we assess that it has the capacity to continue to service its obligations in the event of a sovereign default, and there would likely be no imposition of restrictions on the banks’ ability to service their obligations by the sovereign in the event of a sovereign default.

As such, Fitch do not rate any Sri Lankan banks above the sovereign’s Local-Currency IDR and have a ‘ccc’/negative score on the banks’ operating environment.

The Chairman of the Civil Aviation Authority (CAA) says that the ban on airline passengers with a recent travel history to Saudi Arabia, UAE, Qatar, Kuwait, Bahrain, and Oman during the last 14 days has been lifted subject to several conditions.

The CAA had announced on 28th June 2021, the imposing of restrictions on air passengers from the aforementioned 6 Middle Eastern countries stating that those with a travel history to these countries within the last 14 days will not be allowed to disembark in Sri Lanka.

However, the CAA says it has now revoked that decision subject to certain conditions.

It stated that in accordance with instructions received from the Ministry of Health and the National Operations Centre for Prevention of COVID-19 Outbreak (NOCPCO) the passenger restriction on the following 6 Countries (Qatar, Oman, Bahrain, United Arab Emirates, Saudi Arabia, Kuwait) is revoked with immediate effect on the following conditions:

• All arriving passengers must have a negative PCR Test obtained within 96 hours prior to departure. Airline to ensure this before boarding passengers.
• Antigen tests cannot be accepted as a pre-departure test for boarding.
• PCR test must be presented from a Government approved hospital/laboratory in the respective Country with a QR Code/Bar Code.
• Airlines must satisfy themselves with the authenticity of the test reports presented by the passengers.
• Passengers are permitted to arrive only for Hotel Quarantine or through the Sri Lanka Tourism Bio Bubble Route.

The above conditions will apply until further notice, the CAA chairman said.

Israel Aerospace Industries (IAI) stated today (30) that it recently signed a contract, worth $50 million, with Sri Lanka’s Ministry of Defence to upgrade Kfir aircraft for the nation’s Air Force, Isreal Defense reported.

The deal includes replacing the aircraft’s basic avionics with advanced 4+ generation fighter aircraft avionics in order to one day integrate advanced radar, sensors, communication systems, and new helmets. The upgrade process will also include transfer of related knowledge and skills to Sri Lankan Air Force personnel. The upgrades will be completed in cooperation with the Air Force and in its facilities, IAI said.

Yossi Melamed , IAI Executive VP and GM of IAI’s Aviation Group, said, “I am proud that IAI’s Kfir has been chosen by customers around the world, including in the United States and as the Columbian Air Force’s primary fighter jet. I am grateful to Sri Lanka’s Air Force for choosing to renew their Kfir selection and continue using the Kfir as their Multi-Role Combat Aircraft. I believe this deal is an early step in preparing for future upgrades to the advanced model KNG (Kfir New Generation).”

The Kfir, when first developed, was a game changer on the battlefield with its ability to carry thousands of tons of ammunition and reach enemy targets in a precise manner, IAI stated.

Defence Secretary General Kamal Gunaratne (Retd) has questioned the Chinese Embassy in Sri Lanka over camouflage uniforms worn by Chinese employees of a private company in Tissamaharama.

The opposition had recently questioned the presence of foreigners in Tissamaharama wearing clothing similar to the Chinese military uniform.

Samagi Jana Balawegaya (SJB) MP Manusha Nanayakkara raised the concerns in Parliament saying workers attached to a project in Tissamaharama were seen wearing clothing similar to the Chinese military uniform.

The Defence Ministry said that the Chinese Embassy had informed Defence Secretary General Kamal Gunaratne (Retd), that the said employees are not members of the People’s Liberation Army.

The Embassy has told the Defence Secretary that the clothes are part of the Chinese company’s uniform.

However, the Defence Secretary has told the Chinese Embassy to educate the respective employer to refrain its employees from wearing the controversial military style camouflage uniforms in future.

The Ministry of Defence has also informed the local company to ensure the staff do not wear such uniforms.

“Defence Secretary Gen. Kamal Gunaratne (Retd) has also directed the Southern Province Senior Deputy Inspector General of Police to thwart any further attempt of such nature,” the Defence Ministry said.

Meanwhile, Cabinet co-spokesman Keheliya Rambukwella had said today that the Criminal Investigations Department (CID) and the Military intelligence had investigated the claims and found that the allegations were baseless.

He said that some groups had raised concerns over the matter with vested interests.