Central Bank cuts minimum requirement of Liquidity Coverage Ratio to 90-pct

May 13, 2020 (LBO) – Sri Lanka’s Central Bank has decided to reduce the minimum requirement of Liquidity Coverage Ratio and Net Stable Funding Ratio to 90 percent with enhanced supervision and frequent reporting.

The Central Bank has also decided to permit licensed banks to consider certain assets as liquid assets in the computation of the Statutory Liquid Assets Ratio (SLAR) subject to conditions.

The bank said in a statement that these decisions will be effective up to 30 June 2021.

The objective of the liquidity coverage requirements is to improve resilience in banks’ short-term liquidity risk profile.

These requirements are designed to ensure banks maintain an adequate level of readily available, high-quality liquid assets that can quickly and easily be converted into cash to meet any liquidity needs.

Meanwhile, the Monetary Board has decided to provide additional funding under the refinance facility or other credit operations enabling the banking sector to provide working capital and other loans at concessionary rates of interest, to spur demand in the economy.

It has also been decided to enable licensed banks to avail liquidity through the Deposit Insurance and Liquidity Support Scheme or as loans and advances in Rupees under the Framework of Emergency Loans and Advances to Licensed Banks, based on acceptable collateral and liquidity forecasts.

Boards of Directors and the senior management of licensed banks are strongly advised to closely monitor the liquidity positions of the respective banks and use liquid funds accruing as a result of these measures prudently for intended purposes.