Sri Lanka’s Commercial Banks to increase their capital

http://www.srilankamirror.com/news/item/12061-sri-lanka-s-commercial-banks-to-increase-their-capital

Sri Lanka’s Commercial Banks have been directed to raise their capital to manage financial crises and provide a buffer against financial problems while diversifying its lending portfolios.

The Central Bank, the country’s financial regulator will issue a directive to commercial banks soon to increase its capital by Rs.20 billion by December 31 2017 from Rs.10 billion at present.

This decision was taken at the recent meeting chaired by Prime Minister Ranil Wickremasinghe, to ensure the overall goal of financial system stability while maintaining bigger banks instead of many smaller banks.

Sufficient capital and other buffers will be put in place to make the Sri Lankan financial sector to resist adverse business cycles and liquidity constraints, without sacrificing investment potential during periods of global economic downturn,

Sri Lanka has 32 banks registered with the Central Bank and the aim of the government is to ensure the overall goal of financial system stability while maintaining fewer bigger banks instead of many smaller banks, official sources said.

The government will encourage the voluntary mergers of banks that will result in stronger balance sheets.

However State coffers will have to inject billions of rupees to state-owned banks to meet the increased capital requirements..

But it will not be an easy task due to current financial constraints of the Treasury; a top bank official said adding that the need for additional capital will exert pressure on private sector commercial banks as raising equity by those banks will be more challenging for them than for state banks.

The Commercial Banks have also been asked to diversify its lending port folios as most of them have confined themselves to collateral based lending and have shown a marked reluctance to engage in ‘business model’ based lending, official sources said.

According to a decision taken by the government , the banks’ lending port folios are to be controlled by the Central Bank.

Accordingly, all the banks should lend at least 15 percent each of their loan portfolio to Agriculture and Government institutions, 10 percent each to SME and Tourism, 8 percent to Women, 5 percent to Youth, and 3 per cent to export oriented projects.

The total lending portfolio has been fixed at Rs. 30 million for a specific client.

All commercial banks have agreed to work together and join the National Payment Platform (NPP) soon to handle online payments as part of government efforts to encourage digital transactions. The NPP is being developed by the Communication Technology Agency (ICTA).

(lankainformation.lk)