Banks given concessions on liquidity ratios


Consequent to a liquidity crisis that may arise among licensed banks (LBs) due to Central Bank of Sri Lanka’s (CBSL’s) record increase in policy rates by 7 per cent last month, CBSL Governor Dr. Nandalal Weerasinghe on Monday has given those banks a number of concessions and directions related to the maintenance of certain mandated liquidity ratios which may now be under pressure.

Those include the extension of the deadline for the enhancement of minimum capital requirements of LBs to 31 December 2023 from the previous 31 December 2022. “Until such time those requirements are met, such LBs are debarred from the repatriation of profits and the distribution of dividends,” Weerasinghe’s circular said.

Other directions include, LBs granted time till 30 June 2022 to submit their internal capital adequacy assessment process (ICAAP) document for 2022, LBs may draw down on their capital conservation buffers (CCBs) up to 2.5 per cent, LBs may move to The Standardised Approach (TSA) or the Alternate Standardised Approach (ASA) to compute risk weighted assets up to 31 December 2023.

LBs may stagger their overnight mark to market losses on Government securities denominated in rupees held at fair value arising from the changes in policy interest rates last month, up to the second quarter of 2024 for the purpose of calculating capital adequacy ratios (CARs).

LBs may include 100 per cent of accumulated other comprehensive income (OCI) gains and LBs are permitted to operate maintaining a liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) at a minimum level of 90 per cent up to 30 September 2022.    

By Paneetha Ameresekere