Financial System Policy
As the difficulties faced by borrowers and adverse market conditions could adversely affect the financial sector, several measures were taken to safeguard the stability of financial institutions and the financial system. These were necessary to ensure the safety of customer deposits with authorised deposit taking institutions. Accordingly, regulated financial institutions were provided with adequate regulatory relief considering certain buffers built over a period, which in turn, allows them to support their customers and the overall economy. Measures have also been put in place to provide liquidity support to any distressed financial institution as and when a need arises.
Timeline
| 24 March 2020 |
A circular was issued to LCBs, Licensed Specialised Banks (LSBs) and leasing companies informing relief measures to assist businesses and individuals who were adversely affected by the outbreak. This included a debt moratorium on capital and interest, provision of working capital at an interest rate of 4.00 per cent per annum, capping of interest rates charged on credit card payments, reduction of minimum monthly payment dues on credit cards, extension of the validity of cheques, and to keep all branches of licensed banks open on non-curfew days and corporate branches to be kept open during curfew days. |
| 25 March 2020 | The above circular was interpreted to include Licensed Finance Companies (LFCs). |
| 28 April 2020 | Licensed banks were informed on the extension of the deadline until 15 May 2020 for submission of requests by eligible borrowers to avail concessions under the credit support scheme. |
| 27 March 2020 | Considering capital and liquidity buffers and other factors which affect the safety and soundness of the banking sector, the Central Bank decided to introduce extraordinary regulatory measures for licensed banks to support businesses and individuals affected by the outbreak of COVID-19. Accordingly, the following extraordinary regulatory measures were introduced. o Permit Domestic Systemically Important Banks (D-SIBs) and non D-SIBs to draw down their Capital Conservation Buffers by 100 basis points and 50 basis points out of the total of 250 basis points, respectively. o Permit licensed banks to provide an additional 60-day period to settle loans and advances which are falling due during March 2020 and permit licensed banks to not consider such facilities as ‘past due’ facilities until the end of the 60-day concessionary period with respect to borrowers who are not entitled to other concessions. o Allow licensed banks to consider all changes made to payment terms and loan contracts from 16 March 2020 to 30 June 2020, due to challenges faced by customers amidst COVID-19 outbreak, as modifications to loans and advances instead of restructuring for classification of loans & advances and the computation of impairment. o Withdraw the requirement to classify all credit facilities extended to a borrower as non-performing when the aggregate amount of all outstanding non-performing loans granted to such borrower exceeds 30 per cent of total credit facilities. o Permit the conversion and recovery of loans in foreign currency to Rupee denominated loans, where necessary, subject to banks ensuring that borrowers do not take undue advantage at the cost of country’s foreign reserves or cause pressure on the exchange rate and proper documentation regarding the aforementioned is maintained. o Defer the enhancement of capital by licensed banks, which are yet to meet the minimum capital requirement of end 2020, until end 2022 subject to certain conditions. o Reset the timelines for rectification of supervisory concerns/findings, if necessary, prioritising the severity/importance of the concerns raised for rectification. Banks which are required to meet timelines to address supervisory concerns/findings during the period up to 30 May 2020, shall be granted an extension of 3 months. o Extend the reporting period for submission of statutory returns to the Bank Supervision Department by two weeks and publication of quarterly financial statements by one month until further notice. Depending on the circumstances, the Director Bank Supervision may permit further extensions. |
| 31 March 2020 | The Central Bank introduced a number of measures to provide flexibility to LFCs and Specialised Leasing Companies (SLCs) facilitating them to support businesses and individuals affected by the outbreak of COVID-19 as follows: o Reduction of maintenance of liquid asset requirement, i.e., for time deposits and non-transferable certificates of deposits to 6 per cent from 10 per cent, savings deposits to 10 per cent from 15 per cent, borrowing to 5 per cent from 10 per cent and approved government securities to 5 per cent from 7.5 per cent which shall be maintained by LFCs and reduce the minimum liquid asset requirement to 5 per cent from 15 per cent which shall be maintained by SLCs for a period of 6 months with immediate effect, due to sudden withdrawal of cash by depositors and non-repayment of loan rentals. o An extension of 1 year to comply with minimum core capital requirements. Accordingly, the timeline of 01 January 2020 and 01 January 2021 already set for the enhancement of capital up to Rs. 2 billion and Rs 2.5 billion will be extended until 31 December 2020 and 31 December 2021, respectively. o Defer the enhancements of minimum capital adequacy requirements due by LFCs/SLCs on 01 July 2020 and 01 July 2021, for a further period of one year until 01 July 2021 and 01 July 2022, respectively. o Relax deadlines 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. |
| 08 April 2020 | To assist the meeting of liquidity difficulties of Licensed Microfinance Companies, the requirement to maintain liquid assets under the Microfinance Act Directions No. 04 of 2016 on Maintenance of Minimum Liquid Assets Ratio, was withdrawn with immediate effect. |
| 05 May 2020 | Licensed banks were permitted to consider the following assets as liquid assets for the computation of Statutory Liquid Assets Ratio until 30 June 2021. o Unpaid interest subsidy on Senior Citizen Special Deposit Scheme o Exposures to State Owned Entities guaranteed by the government and classified in Stage 1 under SLFRS 9: Financial Instruments for financial reporting purposes with maturity not exceeding one year with hair cut of 10 per cent. o Fixed Deposits held by banks in other banks (remaining maturity exceeding 1 year but less than or equal 2 years, the hair-cut to be 20 per cent and if the remaining period exceeds 2 years but less than or equal 3 years, hair-cut to be 30 per cent. o Loans secured by deposits under lien equivalent to 20 per cent of deposits o Receivables from Employees Provident Fund (EPF) in settlement of loans o Declaring cash dividends that have not already been declared for financial year 2019 and any interim cash dividends for financial year 2020 o Repatriation of profits not already declared for financial years 2019 and 2020 o Buying back of its own shares o Increasing management allowances and payments to Board of Directors |
| 05 May 2020 | Reduction of the minimum requirement for Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) to 90 per cent with enhanced supervision and frequent reporting up to 30 June 2021. |
| 06 May 2020 | Frequently Asked Questions (FAQs) on Circular Nos. 04, 05 and 06 of 2020 on Concessions granted to COVID-19 hit Businesses including Self-Employment and Individuals, the Letter Dated 27 March 2020 on Extraordinary Regulatory Measures, and the Monetary Law Act Order No. 1 of 2020 on Maximum Interest Rates on Pawning Advances of Licensed Banks were published on the website of the Central Bank of Sri Lanka. |
| 13 May 2020 | With a view to strengthening the liquidity position of licensed banks, the Central Bank restricted the following discretionary payments of licensed banks until 31st December 2020. Further, licensed banks were required to exercise prudence and refrain from incurring non-essential expenditure such as advertising, business promotions, sponsorships, travelling and training etc. as much as possible while exercising extreme due diligence and prudence when incurring capital expenditure during the above-mentioned period. |
| 12 June 2020 | With the view to support the liquidity position of LFCs due to the implementation of the credit support scheme to assist COVID-19 affected businesses and individuals, and the need to meet other urgent liquidity needs of LFCs, the Monetary Board had decided to provide Liquidity Support amounting to a total of Rs.20 billion for LFCs based on the expected maximum of interest income losses due to the moratorium, on proportionate basis under Sri Lanka Deposit Insurance and Liquidity Support Scheme (SLDILSS). |
| 19 June 2020 | Suspension imposed on the purchase of Sri Lanka International Sovereign Bonds (ISBs), introduced on 19 March 2020, was further extended by an additional three months, subject to the fact that such purchases of ISBs are funded by using new foreign currency inflows to the banks. |