June 07, 2017 (LBO) – Sri Lanka’s cabinet has approved a proposal to infuse 5 billion rupees to state-owned People’s Bank in order to comply with new capital adequacy requirements.
Basel III, a new set of reforms expected to strengthen regulation, supervision and risk of the banking sector, is expected to be rolled out by the Central Bank with effect from next month.
The framework imposes higher capital adequacy and other more stringent risk control measures for all banks.
This has necessitated all financial institutions, including People’s Bank to raise their regulatory capital from current leve1 of 10 percent.
As per Basel III, for banks with assets over 500 billion rupees, from next month capital adequacy should be 11.75 percent.
From January 2018, capital adequacy should be 12.875 percent and from January 2019, capital adequacy should be 14 percent.
The framework also imposes a leverage ratio requirement of 4 percent and is to be effective from January 1, 2018.
People’s Bank’s current regulatory capital shortfalls to meet the new requirements are in excess 20 billion rupees over the next three year period.
Public Enterprise Development Minister Kabir Hashim presenting the proposal said whilst the bank is in the process of undertaking several initiatives with the objects of bridging this shortfall, the new capital infusion at this juncture is requisite and necessary.
With a lending portfolio of over 350 billion rupees, the Bank is a key lender to the state and state owned enterprises (SOEs) and broadly one third of the Bank’s total loan book is composed of lending to SOEs.