- WB Country Head Hadad-Zervos says country’s economic crisis highlights need for strong safety nets to support financial sector
- Points out that strengthening Deposit Insurance Scheme will help protect savings of smaller depositors
- Says financing will also help sustain confidence in SL’s financial system
Sri Lanka is set to receive fresh financing, with the World Bank’s Board of Executive Directors giving the nod to release US $ 150 million to strengthen the island nation’s resilience in the financial sector.
The approval came in on Thursday (9).
According to World Bank Country Director for the Maldives, Nepal and Sri Lanka Faris Hadad-Zervos, the country’s economic crisis highlights the need for strong safety nets to support the financial sector.
“A stable and reliable banking sector is essential for the economy, businesses and individuals, small businesses and poor households. Strengthening the Deposit Insurance Scheme will help protect the savings of smaller depositors, including women and people living in rural areas,” said Hadad-Zervos.
He noted that the move would also sustain the confidence in Sri Lanka’s financial system, a critical part of building the country back better.
The Financial Sector Safety Net Project is designed to boost the financial and institutional capacity of the Sri Lanka Deposit Insurance Scheme (SLDIS), which the Central Bank of Sri Lanka manages.
The World Bank expressed confidence in the financing helping to boost the reserves of the SLDIS, which could be used towards the payout to the insured depositors of the banks and licensed finance companies. In parallel, the project is also expected to support institutional strengthening of the SLDIS, in line with international good practices for effective deposit insurance schemes.
Strengthening the financial sector safety net is crucial for maintaining financial stability during a macro-debt crisis, said Alexander Pankov, Lead Financial Sector Specialist and Task Team Leader for the project.
“A robust deposit insurance system, along with enhanced supervision and resolution frameworks, will safeguard public confidence in the financial system and protect people’s savings,” he added.
The SLDIS was established in 2010 and has conducted several payouts for failed licensed finance companies in recent years. Currently, the SLDIS guarantees the deposits of households and enterprises up to Rs.1,100,000, which covers more than 90 percent of deposit accounts in Sri Lanka.
The legal framework for deposit insurance in Sri Lanka was upgraded earlier this year, through the approval of the Banking Special Provisions Act by Parliament.
The World Bank stressed that the SLDIS should now be strengthened institutionally and financially, for it to be able to effectively fulfil its legal mandate of protecting the financial sector stability.