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Sri Lanka eyes new liquidity measures for finance companies, asset rules lowered: CB

ECONOMYNEXT – Sri Lanka has lowered the requirements for finance and leasing companies to tie up capital in liquid assets and is also considering new measures to inject liquidity in the sector, the central bank said as the country is gripped by a Coronavirus crisis.

The central bank said the requirement to maintain liquid assets deposits had been lowered ease liquidity stress faced by licensed finance companies and licensed leasing companies due to sudden withdrawal of cash by depositors and delay of repayment of loan rentals.”

“Several other measures to enhance the liquidity are being currently considered to inject more liquidity to the system,” the central bank said.

The sudden lockdown of the economy to halt the spread of Coronavirus has hit cashflows of many companies and they have also been given debt relief which will reduce cash inflows to the financial sector.

People who do not get salaries or their incomes are otherwise hit try to withdraw deposits in savings institutions. Others also try to keep more than the usual amount of cash to pay for food and other essentials.

The banking sector has seen a 140 billion rupee draw down of cash since the Coronavirus crisis began, the central bank has said.

The central bank also asked non-bank financial institutions to “to take all possible measures to minimize their operational costs and to provide the benefits to the needy people who have affected with this Covid-19 pandemic, and to revive their businesses.”

The regulator said it will closely monitor the operations of all financial institutions with latest market developments, and take further measures appropriately in order to maintain the Financial System Stability of the country, the General Public is hereby requested to support the initiatives taken by the authorities.”

The full statement is reproduced below:

Measures taken by the Central Bank of Sri Lanka to Provide Flexibility to Non-Bank Financial Institutions(NBFIs) to Support Businesses and Individuals Affected by the Outbreak of Coronavirus (COVID – 19)

The Monetary Board of the Central Bank of Sri Lanka (CBSL) decided to introduce number of measures to provide flexibility to NBFIs namely Licensed Finance Companies (LFCs) and Specialised Leasing Companies (SLCs) facilitating them to support businesses and individuals affected by the outbreak of COVID-19. These measures include relaxation of regulatory requirements and granting liquidity support for needy LFCs.

Accordingly, Monetary Board relaxed the following regulatory requirements as measures to support COVID-19 affected businesses and individuals on an urgent basis:

(a) Reduction of maintenance of liquid asset requirement for time deposits, savings deposits and borrowings to ease liquidity stress faced by LFCs/SLCs due to sudden withdrawal of cash by depositors and delay of repayment of loan rentals.

(b) An extension of one year to comply with minimum core capital requirements.

Accordingly, time line of 01.01.2020 and 01.01.2021 already set for the enhancement of
capital up to Rs.2bn and Rs.2.5bn will be extended until 31.12.2020 and 31.12.2021,
respectively.

Issued By
(c) Defer the enhancements of minimum capital adequacy requirements due by LFCs/SLCs

on 01.07.2020 and 01.07.2021, for a further period of one year until 01.07.2021 and
01.07.2022, respectively.

(d) Relax deadlines on submission of statutory returns and accordingly all LFCs/SLCs are informed to submit statutory returns to the Department of Supervision of Non-Bank
Financial Institutions within two weeks of the commencement of normal business
operations of such LFCs/SLCs.

Further, arrangements have been made to provide liquidity support under Sri Lanka Deposit Insurance and Liquidity Support Scheme (SLDILSS) for LFCs with acceptable collaterals to facilitate urgent liquidity needs of such LFCs, in order to ensure the safety and soundness of LFCs.

Several other measures to enhance the liquidity are being currently considered to inject more liquidity to the system.

In addition to that, NBFIs are advised to take all possible measures to minimize their
operational costs and to provide the benefits to the needy people who have affected with this Covid-19 pandemic, and to revive their businesses.

While CBSL will closely monitor the operations of all financial institutions with latest market developments, and take further measures appropriately in order to maintain the Financial System Stability of the country, the General Public is hereby requested to support the initiatives taken by the authorities.

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