Download press release - Central Bank of Sri Lanka

CENTRAL BANK OF SRI LANKA
Communications Department
30, Janadhipathi Mawatha, Colombo 1.
Tel : 2477424, 2477639,2477420
Fax : 2346257, 2477739
E-mail:[email protected]; [email protected]
PRESS RELEASE
Date: 20.02.07
Issued By: Bank Supervision Department
New Prudential Requirements on Maximum Amount of Accommodation
Granted by Banks
One of the policy measures proposed in the Road Map: Monetary and Financial Sector
Policies for 2007 and Beyond announced by the Central Bank on January 2, 2007 is to issue new
prudential requirements on single borrower limit of licensed banks with the objective of mitigating
the banks’ credit concentration risk arising from granting loans and other facilities to large
customers and promoting the banks’ risk management further.
Accordingly, on February 20, 2007, the Central Bank issued new Directions under the
Banking Act to licensed banks covering prudential requirements on maximum amount of
accommodation that may be granted to single customers or grouped customers by licensed banks.
In these Directions, existing prudential requirements on single borrower limit are revised and
realigned to encourage and promote better risk management of banks. The Central Bank will
continue to watch whether the banks’ risk management improves as a result of these Directions and
revisit the Directions if necessary to ensure that the objectives if improved risk management are
achieved. The highlights of the Directions are as follows.
(i).
The accommodations that are subject to and fall within the limits of maximum amount of
accommodation specified in the Directions include any loan, overdraft or advance inclusive
of finance lease, hire purchase and reverse repurchase agreements against debt securities,
investments in debentures and other debt instruments and any commitment to grant any loan,
overdraft or advance or such other facility including a commitment to accept a contingent
liability.
(ii). Accommodation granted against certain types of securities will be excluded from the
computation of accommodations for the purpose of complying with the maximum limits.
This includes accommodation granted against the security of cash, gold, Government
Securities, Central Bank Securities, Treasury Guarantees, Central Bank Guarantees,
Guarantees issued by the World Bank, the Asian Development Bank, International
Development Association or any other international institution acceptable to the Monetary
Board and Guarantees issued by a bank incorporated in Sri Lanka or abroad having a high
credit rating in the range of AAA to A- or equivalent (subject to exclusions limiting to 80%
and 50% based on the ratings).
(iii). Maximum limits of accommodation that may be granted by banks to the categories of
customers such as individuals, companies and groups of companies referred to in the Banking
Act are specified as a percentage of capital base of the licensed banks computed for the
purposes of maintaining the capital adequacy ratio in terms of the Basel Capital Accord.
(iv). Four major limits of accommodation as a percentage of capital base of a bank specified in the
Directions are as follows.

30 per cent in respect of an individual, a company or any other entity.

33 per cent in respect of a group of companies where the companies are grouped or
connected as per the provisions of the Banking Act.

Enhanced limits of 36 per cent and 40 per cent in respect of a group of companies
depending on the status of risk management of banks and companies measured on a
formula covering the capital adequacy ratio of banks and credit rating of banks and
companies in the group.

In the event, accommodation is granted to any customers in excess of 15 per cent of
capital base of a bank, the total amount of accommodation granted to all such
customers should not exceed 55 per cent of total outstanding accommodation
granted by the bank to all customers.
(v). In terms of the Banking Act, the Monetary Board retains the powers to grant permission to
banks to provide accommodation up to 50 percent of capital base of banks for infrastructure
projects specified in the Directions and such other higher limits of accommodation to any
customers on a case-by-case-basis subject to terms and conditions the Monetary Board may
deem fit, taking into consideration the national priorities and/or national interest and
assessment of risks arising from such accommodation to banks.
(vi). The maximum limits will not apply to accommodation granted to (a) the Government of Sri
Lanka, (b) any licensed bank with a contractual repayment or maturity period of less than two
years and (c) Ceylon Petroleum Corporation and Ceylon Electricity Board for a maximum
period of two years from the date of the Directions.
(vii). If any accommodation already granted exceeds the new limits, a period of three months is
given to reduce such accommodation to the new limits.
(viii). Any licensed bank that contravenes these Directions shall not pay dividends or repatriate
profits until the contravention is rectified.