Strong measures announced to strengthen Sri Lanka’s banking regulator

Reforms to the Central Bank to strengthen its role in financial markets, more transparency in the money markets and increasing capital requirements of finance and leasing companies were announced on Tuesday by Sri Lanka’s banking regulator.
These measures were detailed out in the CB’s economic roadmap for 2017 presented by CB Governor Dr. Indrajith Coomaraswamy to an invited audience of public and private sector personalities at the bank auditorium.
Among the key highlights of his presentation are:
•    The number of Monetary Policy Committee (MPC) meetings to be reduced to eight per year from the current level of 12 meetings per year. Consequently, around 5-6 weeks will be devoted for analysing the latest developments in the economy and developing model-based macroeconomic forecasts, thereby facilitating the provision of in-depth and more forward looking insights to the monetary policy formulation process.
•    The Monetary Policy Consultative Committee (MPCC) will be introduced in 2017, comprising eminent academics, professionals as well as representatives from the private sector. We expect to benefit from the views and inputs of the MPCC in better calibrating the monetary policy decision making process.
•    We will consider provisions for reinforcing the Central Bank’s enforcement powers for violations of the Act and the Directions issued under it. In this regard, we wish to seek views from the banking sector as well.
•    We will review key Banking Act Directions, such as share ownership, foreign borrowings, and corporate governance, and these will be amended where necessary.
•    The capital levels of licensed finance companies (LFCs) and specialised leasing companies (SLCs) are expected to be strengthened further. Accordingly, existing LFCs and SLCs will be required to maintain a higher minimum core capital than the prevailing requirement of Rs. 400 million and Rs. 300 million, respectively. These will be increased to Rs. 2 billion and Rs. 1 billion, respectively on a staggered basis to facilitate the smooth transition. This will serve as a structural capital buffer for further consolidation of this sector.
•    We will introduce more transparency and predictability of the primary auction process in the government securities market. Such initiatives will provide the same information to all market participants thereby ensuring the availability of information on potential transactions well in advance.
•    Further, with the intention of enhancing the transparency of our operations, since June 2016, a decision is in place not to accept more than the aggregated offered amount at an auction although the Central Bank may accept less than the amount offered.
•    I should also mention that the government has announced its intention to restructure the Central Bank. We would very much welcome a constructive restructuring process, which would upgrade processes and result in the reform of the Monetary Law and Banking Acts, particularly to give greater powers to the Central Bank to regulate the financial system. We are confident that such moves would be instrumental in enhancing the credibility of the Central Bank, while preserving the independence it needs to perform its roles effectively.

The full text of the Governor’s speech can be assessed through - http://www.cbsl.gov.lk/pics_n_docs/latest_news/speech_03012017.pdf