World Bank Approves $150 Million to Enhance Sri Lanka’s Financial Sector Resilience
The World Bank Executive Board has granted approval for a financial package of US$ 150 million to Sri Lanka, aimed at bolstering the resilience of the country’s financial sector. The funding is designated to enhance the financial and institutional capabilities of Sri Lanka’s financial sector safety net, with a primary focus on reinforcing the Sri Lanka Deposit Insurance Scheme.
In a statement, Faris Hadad-Zervos, World Bank Country Director for Maldives, Nepal, and Sri Lanka, emphasized the importance of a robust safety net in the wake of Sri Lanka’s economic challenges. The funding will specifically contribute to strengthening the Deposit Insurance Scheme, providing protection to the savings of smaller depositors, including women and individuals in rural areas. This initiative aims to instill confidence in Sri Lanka’s financial system, a critical component of the country’s recovery efforts.
The Financial Sector Safety Net Project is designed to enhance the financial and institutional capacity of the Sri Lanka Deposit Insurance Scheme (SLDIS), managed by the Central Bank of Sri Lanka. The financing will augment the reserves of SLDIS, which can be utilized for payouts to insured depositors of banks and licensed finance companies. Additionally, the project will support the institutional strengthening of SLDIS in alignment with international best practices for effective deposit insurance schemes.
Alexander Pankov, Lead Financial Sector Specialist and Task Team Leader for the project, stressed the significance of reinforcing the financial sector safety net during a macro-debt crisis. A robust deposit insurance system, coupled with enhanced supervision and resolution frameworks, is crucial for maintaining financial stability, preserving public confidence in the financial system, and safeguarding people’s savings.
Established in 2010, the SLDIS has conducted multiple payouts for failed licensed finance companies in recent years. Presently, the scheme guarantees deposits for households and enterprises up to LKR 1,100,000, covering over 90 percent of deposit accounts in Sri Lanka. The recent legal upgrade through the approval of the Banking Special Provisions Act underscores the need for institutional and financial strengthening of SLDIS to effectively fulfill its legal mandate in protecting financial sector stability.