Small Sri Lankan bank to possibly look for partners
Officials of the Central Bank (CB) have revealed that excepting one all other banks in the country are capital resilient. Choosing not to reveal the identity of the bank, the officials said the bank had assets less than LKR 200 billion and faced many challenges when complying with the Basel III minimum capital requirements by January, 01, 2019.
Officials further said that the bank occupied less than 1% of market share, with the bank’s final financial report expected by October so that officials can analyse its capital in relation to its risk-weighted assets before providing solutions.
The CB conducted an awareness programme for media personnel on Basel III, an international standard that spells out all the guidelines on capital adequacy which is a measure of the financial strength of a bank expressed as a ratio of its capital to its risk weighted assets. The higher the capital adequacy ratios a bank has, the greater the level of unexpected losses it can absorb before becoming insolvent. ¹
“Many measures can be used to resuscitate a financial institution and in this case should the entity fail to raise capital consolidation is an option. Should anything go wrong, it won’t impact the system stability as the size of this bank is too small for a major shock,” said CB Deputy Director – Bank Supervision, Rukshana Jayatilake.
CB Director – Bank Supervision, A.A.M. Thassim, stated that the CB would establish a Resolution and Enforcement Department by early 2018 so that it could overlook and simplify the legal requirements of bank supervision. In order to allow the CB more leeway the Monetary Law Act and Finance Business Act are presently being adjusted and improved.
The CB is also expected to release a consultation paper in October regarding the operation of net stable funding ratio, a longer term structural ratio designed to address liquidity mismatches.
Restructuring the fiscal legal framework will help mitigate risks and help avert financial disaster from hitting Sri Lanka’s banking sector.
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