The Central Bank of Sri Lanka, in view of the prevailing macroeconomic conditions and their impact on the banking sector, has decided to implement the following regulatory measures to assist the banking sector in facilitating efficient financial intermediation and the flow of credit to economy, while ensuring the soundness of the banking sector.
• The Sri Lankan banking sector maintains a Capital Conservation Buffer (CCB) of 2.5% to ensure that banks have an extra layer of usable capital that can be drawn down in times of crisis. Industry-wide flexibility is given to banks to withdraw CCB (up to 2.5%), if needed, subject to restrictions on distribution to shareholders/profit repatriation and submission of a capital increase plan to rebuild the CCB for a period of up to three years.
• The current deadline for licensed banks to meet the enhanced minimum capital requirement (31.12.2022) is extended to 31.12.2023. Authorized banks that are unable to meet the minimum capital requirement by 31.12.2022 must submit their capital increase plan, including plans for consolidation or merger with appropriate financial institutions, d by 31.12.2022 and these authorized banks must also refrain from distributing dividends. / repatriation of profits until the minimum capital requirement is met.
• Licensed banks are encouraged to adopt approaches such as the standardized approach (TSA) or the alternative TSA for the calculation of risk-weighted assets for operational risk for the purpose of calculating the capital adequacy ratio, subject to prudential review.
• Licensed banks have the option to spread until the second quarter of 2024, under certain conditions, the unrealized loss in market value on LKR-denominated government securities due to the recent rise in interest rates. interest for capital adequacy purposes.
• Licensed banks are granted flexibility on the treatment of other comprehensive income (OCI) for capital adequacy purposes in line with international standards.
• The deadline for licensed banks to submit the Internal Capital Adequacy Assessment Process (ICAAP) document for 2022 to the Central Bank of Sri Lanka is extended by one month, until 30.06.2022.
• As a short-term measure to help licensed banks adjust their liquidity profiles, licensed banks are given the flexibility to operate maintaining the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) ) not less than 90% until 30.09. .2022. In addition, the Central Bank of Sri Lanka decided on May 6, 2022 to restrict certain discretionary payments by licensed banks, such as the declaration of cash dividends and the repatriation of profits, until the financial statements for the year 2022 be audited by its external auditor, engaging in share buybacks, increased management fees and payments to the board of directors until December 31, 2022 with a view to strengthening the liquidity and capital of licensed banks in these exceptional circumstances.
The above measures have been introduced with the aim of providing licensed banks with more flexibility and opportunities to operate in these difficult conditions and support the economic recovery, while taking steps to improve their safety and soundness. The Central Bank of Sri Lanka will periodically review the implementation of these policy measures and expects licensed banks to take advantage of these measures in the best interests of customers and the economy as a whole, while helping the industry bank to remain resilient.