Central Bank offsets losses with imputed valuation

The Central Bank of Sri Lanka has employed an imputed valuation method for its restructured government securities due to the absence of a market price. 

This strategic move has potentially helped the bank avoid negative net assets and mitigate even larger financial losses for the year 2023.

In its latest financial report, the central bank disclosed losses amounting to 114.3 billion rupees for 2023. 

These losses were primarily driven by a substantial 766 billion rupee "one-day loss" resulting from the restructuring of its Treasury bill portfolio into long-term bonds with "step down" coupons.

The central bank's portfolio of Treasury securities, originally acquired to address monetary instability from 2020, initially generated high profits as interest rates rose to correct the balance of payment deficit.