The Monetary Board of the Central Bank of Sri Lanka (CB), in the wake of the possible adverse impact on liquidity and other key performance indicators of licensed commercial banks and licensed specialised banks due to the implementation of the credit support scheme to assist businesses and individuals, and the need to meet other urgent liquidity needs of banks, considers it imperative to strengthen the liquidity positions of banks.
The Monetary Board has decided to implement the following extraordinary regulatory measures to strengthen the liquidity positions of licensed banks, under the provisions of the Banking Act and the Monetary Law Act.
a) Provide additional funding under the refinance facility or other credit operations enabling the banking sector to provide working capital and other loans at concessionary rates of interest, to spur demand in the economy.
b) Up to 30 June 2021: (i) permit licensed banks to consider certain assets as liquid assets in the computation of the Statutory Liquid Assets Ratio (SLAR) subject to conditions, and (ii) reduce the minimum requirement of Liquidity Coverage Ratio and Net Stable Funding Ratio to 90% with enhanced supervision and frequent reporting.
c) Enable licensed banks to avail liquidity through the Sri Lanka Deposit Insurance and Liquidity Support Scheme or as loans and advances in Rupees under the Framework of Emergency Loans and Advances to Licensed Banks, based on acceptable collateral and liquidity forecasts.To strengthen the liquidity position of banks under these exceptional circumstances, the Monetary Board has restricted certain discretionary payments of licensed banks, such as declaring cash dividends or repatriation of profits, engaging in share buybacks, increasing management allowances and payments to the Board of Directors until December 31, 2020. Licensed banks are also required to exercise prudence and refrain to the extent possible when incurring non-essential and capital expenditure during this period. Considering the resource constraints currently faced by banks and prevailing market conditions due to Covid-19 outbreak, the Monetary Board has also decided to waive the annual assessment of Domestic Systemically Important Banks (D-SIBs) for 2020 and maintain the already designated D-SIBs as published in December 2019, for 2020 as well.Boards of Directors and the senior management of licensed banks are advised to closely monitor the liquidity positions of the respective banks and use liquid funds accruing prudently.