No major threat to Lanka’s financial stability - CB

The Central Bank said this week that there wasn’t any major threat to Sri Lanka’s financial system stability in the near future.

The latest issue of the Bank’s Financial System Stability Review (FSSR) released this week said however a few downside risks have been highlighted, emphasizing the importance of continuous vigilance by relevant stakeholders to initiate early action to mitigate these risks.

Central Bank Governor Nivard Cabraal with Nirmali Samaratunga, a chamber president and BOI Chairman Lakshman Watawala after the recent launch of the bank’s roadmap for 2007.

The FSSR reveals that the recent developments in Sri Lanka’s financial system have contributed to further strengthen the stability of the financial system.

It stresses the importance of maintaining a sound macroeconomic environment, improvement in risk management practices in financial institutions and continuous improvement in the efficiency of the regulatory and supervisory framework, the judicial system and legal process to maintain financial system stability.

The review explains the recent measures and initiatives taken by the Central Bank and other authorities to improve the resilience of the financial sector.

These include, among others: enhancing minimum capital requirements of key financial institutions, strengthening prudential regulations, improving the legal framework through new legislation and amendments, continuation of public awareness on the risks associated with fraudulent and unauthorised investment schemes, improving the efficiency of the payment and settlement system infrastructure through modernization and introducing international best practices.

“The FSSR provides reliable information to all stakeholders, including financial institutions, markets, policy makers, the government, regulators and the public, to understand potential risks and the need to take appropriate measures to manage these risks in a more meaningful manner,” the Bank statement said.

In pursuing the objective of promoting and safeguarding financial system stability, the Central Bank keeps a close watch on the functioning of the financial system to identify potential sources of risks that could create vulnerabilities in the financial system. The Bank also assesses the ability of the financial system to withstand these potential risks and encourages all stakeholders to put in place effective risk mitigation measures. The Central Bank annually publishes the FSSR to enhance public awareness of financial system stability issues.