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More bank investment and lending to selected corporations

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Specifications in CBSL’s first banking directive of 2023 to avail

The Central Bank has allowed the banking sector to compute qualifying non-financial corporate debt securities and qualifying non-financial common equity shares as liquid assets in the computation of the Statutory Liquid Asset Ratio.

Under the move, selected corporations are more likely to receive bank investment and lending as they are more likely to be treated as reserve assets by the regulator.

The move comes under the first Banking Directive of 2023 on January 31. As the Central Bank is expected to guarantee the health of the financial sector this by proxy is a move to guarantee the financial standing of select corporate entities. The move will also allow entities to become systemically important to the health of the financial sector and thereby ensure that they will receive bailouts when necessary.

The Central Bank has also deemed that the Non-Banking Financial Sector (NBFI) sector shall seek the approval of the Director Supervision NBFI before paying any dividends. The move will prevent entities from paying out dividends to an extent that poses a liquidity risk to the entity. The move is retrospectively active from March 1, 2022. Dividend approval shall be done on a case-by-case basis and shall be at the discretion of the Director Supervision NBFI.

The Central Bank due to the rise in liquidity has also opened up the USD/LKR Buy-Sell and Sell-Buy Foreign Exchange Swap Auctions of the Central Bank. The auction results shall be communicated to participants thereby providing better oversight on how much demand and supply of exchange exists in the marketplace.

The Central Bank has also tied the Central Bank rate of interest on Advances to the Average Weighted New Deposit Rate with a margin of 300 basis points. (TP)


Friday, February 3, 2023 – 01:00

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