Standard & Poor's, a rating agency gave Sri Lanka a score of '8' on a scale where the highest risk in 10, for in a Banking Industry Country Risk Assessment (BICRA), placing the island alongside Nigeria, Tunisia, and Kazakhstan.
"Our economic risk score of '8' for Sri Lanka reflects a "very high risk" assessment of economic resilience and credit risk in the economy, and a "high risk" assessment of economic imbalances, as our criteria define those terms," S & P said in a statement.
"Our assessment of economic resilience reflects Sri Lanka's status as a low-income economy, as measured in terms of its per capita GDP, and the inefficiencies in the economy.
"Nevertheless, Sri Lanka's economic growth prospects have improved following the end of the civil war and subsequent shift in the government's focus toward boosting the economy and diversifying sources of growth."
S & P said the banking industry had a risk score of '7' with regulation weaker than international standards, though capital requirements were higher. Governannce and transparency were also weak by international standards.
There regulatory conflicts with the governing board of the Central Bank also involved in stock investments in through a large pension fund.
"Our industry risk score of '7' for Sri Lanka is based on our opinion that the country faces "very high risk" in its institutional framework, "high risk" in its competitive dynamics, and "intermediate risk" in its system-wide funding," the rating agency said.
"Moreover, we see a potential conflict of interest in the central bank's role. In addition to policy formulation and supervision of banks, the monetary board of the central bank also oversees Employees' Provident Fund investments.
"The fund is a large investor in Sri Lankan banking stocks."
S & P said banks were helped by a large domestic depositor base and he government was also supportive of private sector banks.
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