Home » WB’s IDA provides US$ 150 million to strengthen Sri Lanka’s financial sector

WB’s IDA provides US$ 150 million to strengthen Sri Lanka’s financial sector


By: Staff Writer

February 03, Colombo (LNW): Sri Lanka is set to strengthen the resilience of the financial sector with the World Bank’s assistance of US $150 million in financing for. Safety Net Strengthening Project, official sources said. 

The Government of Sri Lanka has made arrangements to borrow $ 150 million from the International Development Association (IDA) of the World Bank Group to finance the implementation of Financial Sector Safety Net Strengthening Project.

The Financial Sector Safety Net Strengthening Project will contribute to strengthen Sri Lanka’s financial sector safety net with the focus on the Sri Lanka Deposit Insurance Scheme (SLDIS), which is managed by the CBSL.

The project also aims at strengthening the financial and institutional capacity of SLDIS in line with international best practices for effective deposit insurance schemes.

Further, it will also support to boost the reserves of SLDIS in order to enable it to meet its payout and bank resolution obligations, and to safeguard the confidence of the public in the financial system.

It is aimed to improve the capacity of the SLDIS to perform its legally mandated functions by the reduction in time required for reimbursement and by an increase in public awareness about the scheme.

The project will be implemented by the Central Bank (CBSL) in consistent with the project development objectives and project design.

The relevant Financing Agreement for the Financial Sector Safety Net Strengthening Project, amounting to USD 150 million was signed by Mr. K.M. Mahinda Siriwardana, Secretary to the Treasury, and Mr. Faris H. Hadad-Zervos, Country Director for Maldives, Nepal and Sri Lanka, on January 31, 2024 on behalf of the Government of Sri Lanka and IDA, respectively.

“Sri Lanka’s economic crisis highlights the need for strong safety nets to support the financial sector. Stable and reliable banking sector is essential for the economy, businesses and individuals, small businesses and poor households,” said Faris Hadad-Zervos, World Bank Country Director for Maldives, Nepal, and Sri Lanka.

“Strengthening the Deposit Insurance Scheme will help protect the savings of smaller depositors, including women and people living in rural areas. It will also sustain the confidence in Sri Lanka’s financial system, a critical part of building the country back better”, he pointed out.

Amidst the decline in the core business, the LFCs sector diversified its activities particularly towards pawning/gold loan facilities which heightened the sector’s risk to fluctuations in global gold prices.

The asset quality of the sector also deteriorated as indicated by the increase in stage 3 loans to total loans ratio.

Meanwhile, overall liquidity of the sector remained at an acceptable level while few companies faced difficulties in meeting liquidity requirements.

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