Sri Lanka to encourage bank mergers, expand to region: CB Governor

ECONOMYNEXT – Sri Lanka will help smaller banks to merge with stronger ones and large commercial banks will also be encouraged to go abroad, Central Bank Governor W D Lakshman said.

“Large commercial banks will be encouraged to continue looking into avenues of expanding into regional markets,” Governor Lakshman said delivering a policy roadmap for 2021.

“Further, the Central Bank will continue to facilitate a market-driven consolidation process, enabling small and medium sized banks to merge with other banks, preferably with larger banks having sound financial positions and viable business models.”

Sri Lanka’s state-run Bank of Ceylon has foreign branches in the UK and Maldives. Commercial Bank of Ceylon is in Bangladesh.

However following extended monetary instability and low growth in recent years and steep depreciation of the currency, Sri Lanka’s sovereign rating has been downgraded to ‘CCC’ level which also hits banks.

“Banking institutions for identifiable market niches, such as development banks, are accepted,” Governor Lakshman said.

Sri Lanka has created two development banks in recent years, LankaPuthra Bank and SME Bank both of which collapsed under bad loans.

One was specifically excluded from the Credit Information Bureau at its inception, making critics argue that they are built to help strongly connected specific clients.

Governor Lakshman said a new Banking Act is in the works and supervision of banks would be strengthened, while helping with regulatory easing as far as possible considering the Coronavirus shock.

“The Central Bank is currently in the process of developing the Group-wide Consolidated Supervision (GCS) framework to be adopted under risk-based supervision of financial groups,” Governor Lakshman said.

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“In 2020, the Central Bank commenced the implementation of GCS framework by carrying out limited GCS, based on the observations of relevant supervisory authorities.

“In addition, in 2021, the Central Bank will consider providing other regulatory relaxations to banks, where possible, considering the extraordinary circumstances that prevailed in 2020.” (Colombo/Jan04/2020)

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