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Foreign Exchange Management

Foreign Currency Banking Units of Commercial Banks

Off – shore banking relates to banking operations out side the shore of a country and creates an off shore centre for the country. In Sri Lanka off – shore banking facilities commenced in 1979 under a Foreign Currency Banking Scheme (FCBS) approved by the Monetary Board after the establishment of the Greater Colombo Economic Commission (later it was re-established as the Board of Investment) to promote the utilization of foreign resources for development of the country and provisions were made in the Company’s Act (No 17 of 1982) for registration of off – shore companies in Sri Lanka having regard to the national interest or the interest of the national economy. Off – shore operations in Sri Lanka have been granted a certain amount of freedom from Banking Act & Exchange Control Laws etc.,

Facilities to Non Residents
“Non residents” shall have the meaning assigned to them in Section 86 of the Banking Act No. 30 of 1988.
  • In terms of the Order issued under the Banking Act No. 30 of 1988 in April 2000 an off shore unit is permitted to carry on the businesses with non-residents specified in the paragraphs (a) to (e) of Section 25 of the Banking Act.
    1. To accept time and demand deposits from any non resident in any designated foreign currency provided that in the case of time deposits, such deposits shall not be less than US$ 10,000 or equivalent and funds of an account maintained with an offshore unit shall not be withdrawable by cheque
    2. Borrow any sum in any designated foreign currency from any non resident
    3. Extend accommodation to any non resident in any designated foreign currency
    4. Engage in any transaction in any designated foreign currency with any other off – shore unit
    5. Engage in any other transactions authorized by the Monetary Board with the Hon Minister’s approval in any designated foreign currency
  • In accepting any contingent liability indicated under Section 25(c) of the Banking Act, an off-shore unit shall only engage in any or all of the following transactions
    1. Establish, open or advise letters of credit expressed in designated foreign currency
    2. Issue or renewal of guarantees, indemnities or similar undertakings expressed in any designated foreign currency
    3. Acceptances expressed in any designated currency
Facilities to Residents
“Resident” shall have the meaning assigned to them in Section 86 of the Banking Act No. 30 of 1988
In addition to permitted transactions with non-residents a foreign currency-banking unit could engage in permitted transactions with the following residents;
  1. Central Bank
  2. A licensed commercial bank
  3. A BOI enterprise approved under Section 17 of the BOI law with the facility of transactions with off – shore units
  4. Any other resident approved by the Monetary Board of the Central Bank of Sri Lanka in the interest of the national economy. Accordingly, exporters and indirect exporters have been permitted to borrow in foreign currency from an off – shore unit subject to limits approved by the Central Bank and to discount their export bills expressed in designated currency. Transactions permitted through an off – shore unit are generally free from Exchange Control regulations with the following limits imposed on such transactions.
Limits imposed by ECD
  • Loans to BOI companies
    1. An off – shore unit shall not grant a loan in foreign currency to a BOI enterprise unless the off shore   unit is satisfied that the BOI enterprise has the capacity to repay the loan in foreign currency
    2. Rupee balances of the BOI companies engaged in infrastructure projects should not be converted simply for the purpose of transferring to their Off Shore accounts. However, Rupee balances of such companies be converted into foreign currency only for the purpose of meeting any legitimate business transactions approved by BOI. 
  • Loans to direct exporters
    1. Loans should be given only to exporters whose bonafide is determined in terms of his export performance etc.,
    2. Loan should be recovered only from their export earnings,
    3. Any loan should be within the maximum limits specified by the Central Bank (International Operations Dept) for such loans,
    4. In the case of a default, every endeavor should be made to recover the outstanding balance by selling mortgaged assets against foreign currency. Rupee proceeds can be converted only on failing such attempts.
  • Loans to indirect exporters
    1. For the purpose of supplying accessories to direct exporters based on confirmed orders and domestic L/Cs,
    2. Off – shore units should ensure that payment for the sale of accessories received in foreign currency
    3. No restriction over duration of the loan