Home » SL’s banking supervision to be strengthened following international good practices

SL’s banking supervision to be strengthened following international good practices


By: Staff Writer

January 17, Colombo (LNW): Sri Lanka’s banking supervisory processes being handled by the Central Bank is now set to be strengthened following international good practices to promote the safety and soundness of banks, official sources claimed.  

However the government ownership and reduce potential exposure to illegitimate business practices have become a stumbling block for the stat banking sector performances in the recent past, IMF report observed.

In particular, supervisory processes should be developed to ensure that there is no supervisory forbearance, specific risks and challenges.

These specific risks and challenges arising from state ownership are identified and addressed timely, and ensure effective implementation of the good corporate governance framework and practices, in particular regarding the bank board’s composition, the processes for nominating and appointing the directors and senior managers,, it added.

Sticking to IMF directives, the Central Bank announced this week its intention to forward guidelines for appointing the State bank Board of Directors to the Finance Ministry.

“For State-owned banks, which account for 48% of the banking sector assets, the Central Bank expects to issue guidance to the Finance Ministry on appointments to the Board of Directors of such banks,” the Central Bank Governor Dr. Nandalal Weerasinghe said.

He noted that the development of a framework will strengthen State bank governance by mandating that a majority of independent members serve on their Boards.

“Nominations for the Board of Directors and senior management will be made by the banks’ nomination committees using open search procedures with specific standards for professional expertise and independence,” he added.

The assessment of the fitness and propriety of directors, chief executive officers and key management personnel of Licensed Commercial Banks (LCBs) is to be strengthened through the granting of approval for persons with relevant qualifications and experience, thereby improving the composition and competencies of the Board of Directors.

“The proposed amendments to the Banking Act will strengthen the legal and regulatory framework of licenced banks,” he said, adding that the Banking (Amendment) Bill is likely to be enacted in Parliament in early 2024.

The key amendments proposed include strengthening minimum licensing requirements, corporate governance, shareholder suitability, subsidiarisation of foreign banks, as deemed necessary, bank ownership, acquisitions, mergers and consolidation, disposal of non-financial subsidiaries, consolidated supervision, accounts and audit, proportionality, large exposures, and related party transactions.   

The regulatory framework that applies to public banks should be no less stringent that the one that applies to private banks. Ownership arrangements should be designed to avoid conflict of interest. in transactions, he pointed out.

However, the Banking Act sets that banking licences are issued by the Monetary Board with the approval of the Ministry of Finance.

Such provisions, in addition to the Government’s representation on the Monetary Board, the central bank body deciding on every regulatory and supervisory matter, may impair the independence of the Central Bank.

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