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Sri Lanka central bank proposes new banking law, resolution framework

The Central Bank of Sri Lanka plans to implement a new banking law, encourage consolidation among licensed finance companies and prepare a comprehensive resolution framework for all financial institutions as part of its road map for 2020.

Under the proposed Banking Act, the central bank plans to scrap specialized banking licenses, allow banks to ring-fence subsidiaries from adverse external shocks and streamline approval for the establishment of branches. The law would include provisions to introduce a single type of banking license for both licensed commercial banks and specialized banks in the country.

The central bank said it has initiated drafting the law and expects to complete its enactment in 2021.

Currently, there are six licensed specialized banks and 26 licensed commercial banks in Sri Lanka, EconomyNext reported Jan. 6. The licensed specialized banks are National Savings Bank, Sri Lanka Savings Bank Ltd. Housing Development Finance Corp. Bank of Sri Lanka, State Mortgage & Investment Bank Regional Development Bank and SANASA Development Bank PLC.

In the nonbank financial institutions sector, the central bank will encourage voluntary consolidation among licensed finance companies in order to help them meet the minimum capital requirements. It is looking to issue directions on ownership limits for licensed finance companies and draft a comprehensive resolution framework for all financial institutions, among others.