Public funds for bank recapitalisation only as last resort: CB Governor

5 January 2024 06:32 am - 8 - {{hitsCtrl.values.hits}}

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Expresses confidence in ensuring financial sector stability
Ensures govt. will step in only if there is a gap

By Nishel Fernando

Public funds would only be utilised as the last resort to meet the recapitalisation requirements of the banking sector to ensure stability within the financial system, the Central Bank said.

The need for recapitalisation would arise due to external debt restructuring, restructuring of foreign currency exposures of SOEs, bank diagnostic exercise, and forward-looking impact assessments.

“We are confident that we can ensure stability because the government has extended their support and allocated taxpayers money if needed to support the banking system. As to how that is going to be done, there is a process. If there’s a gap, the government can step in as a last resort,” Central Bank Governor, Dr. Nandalal Weerasinghe said.

Although Rupee denominated government securities held by the banking sector were excluded from the domestic debt optimisation perimeter, banks are required to focus on strengthening their capital buffers considering the recapitalisation needs that would arise going forward.

Currently, banks are being directed to submit recapitalisation plans to address capital shortfalls, if any. In particular, state-owned banks are also largely expected to be recapitalised with public funds. In the 2024 budget, Rs. 450 billion was allocated to support the capital augmentation process of the banking sector. This was based on a request from the Central Bank. In addition, it was also proposed to allocate 20 percent of the two state-owned Licensed Commercial Banks to strategic investors or the public.

“Going forward, the Bank Supervision Department will ask every bank to come up with a plan based on their assessments in addition to ours. We will then see if there is a need for the government to support, especially for the two State-owned Banks,” Dr. Weerasinghe said.

In 2023, as a structural benchmark under the IMF’s EFF programme, independent Asset Quality Reviews (AQRs) for nine domestic banks, which account for more than 90 percent of the domestically owned bank assets, were completed covering loans and advances in foreign currency, domestic currency, and foreign currency denominated financial instruments.

Central Bank also developed a roadmap for the restructuring and capital enhancement of five large banks through careful assessment of the results of AQRs, forward-looking stress testing based on macro-financial scenarios, and the impact of domestic and external debt (including FX debt granted by state banks to State Owned Enterprises (SOEs) such as Ceylon Petroleum Corporation) restructuring followed by a recapitalisation strategy to meet the potential capital shortfalls. CB noted that a similar process is being followed for the four smaller domestically owned banks that were subjected to the AQR.

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Comments - 8

Terrence K Friday, 05 January 2024 08:11 AM

You can never touch the funds of customers in banks even as a last resort (must be in a dream world) because it is not your grandmothers wealth and as good citizens of this country a majority have left the shores of this country to toil leaving their near and dear familes back home to earn much needed foreign currency whilst the politicians and certain of the bureaucracy who are parasites remaining in this country have been squandering and robbing the public purse because they know there are loop holes to get out scot free as the law has not been applied equitably. We can only advise you to check whether you have lost your marbles!!!!!!

Jude Friday, 05 January 2024 08:27 AM

Government Banks should sell part of the bank to private equity firms or venture capitalists!!

Reset of Governance Needed Friday, 05 January 2024 09:12 AM

Central Bank has a backup plan like taking loans

Live in misery with no backup Friday, 05 January 2024 11:21 AM

Most families have no backup plans. Just live in misery

Citizen2023 Friday, 05 January 2024 09:33 AM

It will very critical and loss of public trust on the banking system if public finance is utilised for recapitalisation the banking sector. Instead, the Apex Bank should insist the two main govt banks to aggressively follow up and recover non-performing loans to strengthen ther Balance Sheets.

Concerned Friday, 05 January 2024 09:47 AM

Only a few will be able to understand what these things mean so it's easy to confuse the majority. My comment may even sound ignorant to some. Please do not touch public funds even as a last resort!!

Wajira Senaratne Friday, 05 January 2024 02:07 PM

Any further restructuring of the economy should only be initiated by a new government with a clear mandate from the people. This CB Governor does not have a moral right to dictate the direction of the economy to people without the backing of a government appointed by the people. These people don't have any plan for recovery other than IMF. IMF should also pressure the government to go for a national election soon and test people's mandate.

WISHFUL THINKING Saturday, 06 January 2024 09:09 AM

WHY NOT GO AFTER THOSE WHO ARE RESPONSIBLE FOR BRINGING THE COUNTRY DOWN TO ITS KNEES AND INTO A SINK HOLE?. I PREDICT ALL HELL WILL BREAK LOOSE IF PUBLIC FUNDS ARE UTILISED. THIS GUY RETURNED TO THE COUNTRY FROM AUSTRALIA TO SERVE THE COUNTRY OR ONLY A HANDFULL?

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Public funds for bank recapitalisation only as last resort: CB Governor

Comments - 8

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