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Sri Lanka financial regulators to monitor conglomerate risk: CB Governor
12 Dec, 2012 17:36:01
Dec 12, 2012 (LBO) - Sri Lanka's financial regulators will monitor banks connected to conglomerates closely in the future as firms and the financial sector becomes bigger in the future, Central Bank Governor Nivard Cabraal said.
"I know many of you are not only looking at the banking sector but you have other businesses as well," Cabraal told directors of banks in a forum called by the Central Bank Wednesday.

"In good times if the other sectors are doing well it can supplement your bank. It will give the necessary impetus to the bank as well. And he bank can also provide support to the other sectors

"But in difficult times you need to concentrate on ensuring that conglomerate risks are also taken care of."

Cabraal said an inter-regulatory committee made up of the Central Bank, the Securities and Exchange Commission, the Insurance Board and the Stock Exchange will be looking more closely at conglomerate risk.

"As you grow you will find that there are inter linkages, there are influences that could take place from one type of industry to another," he said.

"Because, if there is a risk to the banking sector, it is not a standalone risk. That is why we are so keen about ensuring that the overall conglomerate is manage very effectively in time to come.

"And as it grows the risk can become greater, so therefore the mitigation practices that have to be introduced will be greater."

Several of Sri Lanka's banks are connected to large conglomerates though there are shareholder limits. The Central Bank also has imposed single borrower limits.

There have been concerns raised about state entities flouting shareholder limits and unfit people being appointed as directors to banks where the state holds large stakes.

Cabraal said banks will also have to keep a close eye on international counterparties amid global uncertainty, upgrade information technology and engage in succession planning well ahead of time.

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