Sri Lanka government is going all out to regularise commercial banks and strengthen state owned banks by introducing new banking act soon
The IMF in its staff report released in March 2022 said the finalisation and adoption of the new Banking Act should help achieve required goals.
An entirely new Banking Act is to be passed by the Cabinet in June 2023 and approved by Parliament in December 2023 as IMF structural benchmarks
The Cabinet of Ministers at its meeting on Tuesday approved the resolution presented by President Ranil Wickremesinghe in his capacity as the Minister of Finance, to publish the Banks (Special Provisions) Bill in the Government gazette and table it in Parliament for its approval.
The move follows the Attorney General clearing the bill prepared by the legal draftsman. The proposed bill is expected to supplement the existing Banking Act No. 30 of 1988.
The new legislation once enacted will strengthen the Central Bank’s crisis management powers ensure that the state-owned banks meet the same regulatory requirements as private banks, including on large exposures, related party lending, and governance.
The regulatory and governance framework for state-owned banks will also be strengthened. The Banking Act will ensure that the state-owned banks meet the same regulatory requirements as private banks, including on large exposures, related party lending, and governance.
The Act will include binding time-bound transition periods for the reduction of existing large exposures to SOEs. In parallel with broader reforms to SOE governance, the framework for appointment of directors and senior managers for state-owned Licensed Commercial Banks.
Licensed Specialized banks will be changed to ensure that nominees are independent, have clear periods of appointment, and possess appropriate professional experience.
Clear mandates will be defined to ensure that state-owned banks are run at arm’s length and lend to SOEs on a commercial basis.
They will be supervised by the CBSL and within standard prudential requirements as defined by the Banking Act, including for concentration risk, foreign currency lending, and the suitability and independence of board members and senior executives. New nomination and appointment processes will be defined for directors and management.
Accounting for more than 70 percent of domestically-owned bank assets as of end-June 2022, including the two largest state-owned banks and the three largest private sector banks, based on a Terms of Reference to be agreed with IMF staff.
It has been defined to ensure that state-owned banks are run at arm’s length and lend to SOEs on a commercial basis.
