20 July 2021 09:01 am
Sri Lanka’s banks have been suspended from declaring cash dividends until the financial statements for the year ended December 2021 are finalised and audited.
The measure comes amid the Monetary Board’s move to limit discretionary payments of banks in a bid to ward off potential squeezes on liquidity and capital buffers that could stem from pandemic-induced pressures.
In a fresh directive issued last week, both licensed commercial and specialised banks, irrespective of them being domestically established or branch offices of banks incorporated outside Sri Lanka, were made compliant, effective from July 1.
“Every licensed bank incorporated or established in Sri Lanka shall defer payment of cash dividends until the financial statements/interim financial statements for 2021 are finalised and audited by its external auditor,” the directive read.
The Monetary Board issued similar restrains on banks at the onset of the pandemic last year, expecting stress on liquidity and capital buffers, stemming from potential deposit withdrawals and bad loans.
However, the timely and proportionate regulatory response averted the lockdown-induced economic malaise spilling into the banking sector unduly.
Conversely, the banking sector emerged unscathed with even stronger liquidity and capital buffers as people stockpiled cash in their bank accounts, while the banks went on a capital raising spree, both in the local market and in foreign markets, to bolster their capital adequacy levels as preparation to meet a spurt in demand for low cost loans.
This was seen from increase of banks’ loan-to-deposit ratios during the first quarter ended in March 2021, as they re-opened their lending spigots.
The last week’s directive further prevented licensed commercial banks incorporated outside Sri Lanka from repatriating profits not already declared for the financial years 2020 and 2021 until the financial statements for 2021 were finalised and audited.
Also, banks have also been asked to refrain from re-purchasing their own shares, increasing management allowances and payments to Board of Directors until December 31, 2021.
The Monetary Board also asked banks to exercise prudence and refrain to the extent possible from incurring non-essential expenditure identified as advertising, business promotions, gift schemes, entertainment, sponsorships, travelling and training etc.
The Monetary Board further asked banks to exercise prudence when incurring capital expenditure, if any.