Nepali banks lose Rs 1 bln into recession-hit Sri Lankan bonds


April 14, 2022


(Image for Representation)

KATHMANDU: Sri Lanka which is currently facing an acute economic crisis has announced that it will not be able to pay back a foreign loan of Rs 51 billion.

Sri Lanka has not been able to procure daily essentials including foodstuff and fuel due to scarce foreign currency reserves.

With this announcement, Nepali commercial banks are also likely to lose about Rs 1 billion.

Out of 27 commercial banks in Nepal, 12 to 14 banks had invested in the bonds issued by the Sri Lankan government.

They had, earlier, been offered 8 to  10 percent interest on an average as per the agreement.

Nepali banks had been investing in the bonds of the Sri Lankan government for the last five years.

Nepali banks had invested in the Sri Lanka-issued bonds via Marcus bank in hopes of getting a high-interest rate despite the low rating of Sri Lanka.

Sri Lanka’s economy has been hard hit by economic recession due to which Nepali commercial banks are likely to lose their investment.

Nepali banks had procured a unit of bonds for Rs 80 whose value has now gone down to Rs 54/55 on average.

“There is still an option to sell the procured bonds in the secondary market. But, if the bonds are sold in the secondary market now, Nepali banks are likely to lose Rs 300 to 400 million,” said a highly placed banker who has invested in the Sri Lankan-issued bonds.