Sri Lanka is drafting a new banking law, which is expected to be passed in cabinet and parliament next year, and will also form part of an International Monetary Fund backed programme Deputy Governor Yvette Fernando said.
She said “On the Banking Act we have done a new Act,” Deputy Governor Fernando said. “We want to do a little bit more consultation also there,” “Because we want to expand on the resolution area. So that is happening now.”
An Act to provide for the introduction and operation of a procedure for the licensing of persons carrying on banking business; for the regulation and control of matters relating to the business of banking; and to provide for matters connected therewith or incidental thereto.
The new banking law which will have provisions to more easily resolve troubled banks. It has been included as part of a reform package backed by the IMF.
“Most probably during next year we are expected to finalize it, by going to cabinet and consultation process and also finally getting Parliament approval.”
Sri Lanka is also expected to enact a new monetary law act under the IMF program.Analysts have warned that a draft monetary law prepared before 2019 institutionalises an ‘impossible trinity regime’ where floating rate style liquidity injections.
The Central Bank of Sri Lanka plans to implement a new banking law, encourage consolidation among licensed finance companies and prepare a comprehensive resolution framework for all financial institutions as part of its road map for 2020.
Under the proposed Banking Act, the central bank plans to scrap specialized banking licenses, allow banks to ring-fence subsidiaries from adverse external shocks and streamline approval for the establishment of branches.
The law would include provisions to introduce a single type of banking license for both licensed commercial banks and specialized banks in the country.
Currently, there are six licensed specialized banks and 26 licensed commercial banks in Sri Lanka.
The licensed specialized banks are National Savings Bank, Sri Lanka Savings Bank Ltd. Housing Development Finance Corp. Bank of Sri Lanka, State Mortgage & Investment Bank Regional Development Bank and SANASA Development Bank PLC.
In the non-bank financial institutions sector, the central bank will encourage voluntary consolidation among licensed finance companies in order to help them meet the minimum capital requirements.
It is looking to issue directions on ownership limits for licensed finance companies and draft a comprehensive resolution framework for all financial institutions, among others.
