![Gossip - Lanka News [English]](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEidMdjdmkZNNmQMdiyVyjHG0DAsid1JQzX2Wn_k0MMWpx93YaFp4Hv9rnCw1uuJZY1H60dquhLJCfg_uJg-gEz_FRlG07NUtWUslmZMhWhnOnm3dUim4hjUuNto_KPJrByj4iyXdSXuctY/s1600-r/GOSSIP-LANKA+LOGO.png)
"…A pipeline of infrastructure projects is expected to boost economic growth, together with an accommodative monetary policy," Srikanth Vadlamani, Vice President and Senior Analyst at Moody's said in a statement.
"In such an environment, loan growth will rebound and asset quality will stabilize.
"Our stable outlook for the Sri Lankan banking system is also consistent with our stable outlook on the Sri Lankan government's B1 rating."
According to official data Sri Lanka's economy is growing at 7 percent, one of Asia's fastest rates.
Sri Lanka is recovering from a balance of payments crisis triggered
The corrective action led to a sharp rise in interest rates, a depreciation of the exchange rate and energy price hikes. The weakened exchange rate also helped kill domestic spending power.
Bad loans in banks also rose, compounded by a gold price fall, which led to widespread defaults in gold-backed loans known as pawning.
"We note that lending standards have tightened and, given that these loans have a tenure of only around 12 months, we expect NPLs in this segment to start stabilizing from around the third quarter of 2014," Vadlamani said.
Moody's looked at how creditworthiness will evolve over the next 12-18 months.
It viewed the operating environment as 'stable', asset quality and capital as 'stable', funding and liquidity as 'stable', profitability and efficiency as 'stable' and systemic support as 'stable'.
"Our analysis estimates 14 percent loan growth this year and we do not view this as excessive," Vadlamani said.
"Instead, the key risk to the outlook for economic growth is Sri Lanka's high current account deficit and a resulting reliance on external debt capital flows," he said .
-LBO
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