Tsunami 'to hit Sri Lanka banks'

Sri Lanka's banks face hard times following December's tsunami disaster, officials have warned.

The Sri Lanka Banks Association said the waves which killed more than 30,000 people also washed away huge amounts of property which was securing loans. According to its estimate, as much as 13.6% of the loans made by private banks to clients in the disaster zone has been written off or damaged. State-owned lenders may be even worse hit, it said.

The association estimates that the private banking sector has 25bn rupees ($250m; £135m) of loans outstanding in the disaster zone. On one hand, banks are dealing with the death of their customers, along with damaged or destroyed collateral. On the other, most are extending cheap loans for rebuilding and recovery, as well as giving their clients more time to repay existing borrowing. The combination means a revenue shortfall during 2005, SLBA chairman - and Commercial Bank managing director - AL Gooneratne told a news conference. "Most banks have given moratoriums and will not be collecting interest, at least in this quarter," he said. In the public sector, more than one in ten of the state-owned People's Bank's customers in the south of Sri Lanka were affected, a bank spokesman told Reuters. He estimated the bank's loss at 3bn rupees.