Govt. to divest 20% each in BoC and People’s Bank

In an effort to reduce the burden on taxpayers’ funds, the government said yesterday it is looking to divest 20 percent, each, in the two largest state-owned banks to strategic investors or the public.
While ensuring banking sector stability in the long run, the objective of the move is essentially to improve capital and support the future growth of the two state-owned banks, Bank of Ceylon and Peoples’ Bank.

As per the proposals outlined in the 2024 budget speech, a number of reform measures are being implemented, including stricter rules on credit risk, such as stricter rules on the appointment of chief officers and state bank board members, and restrictions on individual borrowers, to prevent future financial deterioration of state-owned banks. 

The amendments to the Banking Act will provide the legal framework for these reforms and are expected to be passed within the first half of early 2024. 
“The government is keen to ensure that all prudent measures are taken for long-term banking sector stability. To this end, for systemically important banks, an independent asset quality review supported by the IMF programme was conducted,” said President Ranil Wickremesinghe while reading the budget proposals in his capacity as Finance Minister.  He pointed out that the preliminary results of the asset quality review indicated the need to build additional capital accumulation on a prudent basis. Accordingly, the budget has allocated Rs. 450 billion to support the capital improvement process in the banking system. 

Furthermore, as budget allocations are needed to settle the existing debt for which the borrowing limit needs to be increased, the borrowing limit will be increased from Rs. 3,900 billion to Rs. 7,350 billion as per the proposals outlined under ‘stabilisation of financial sector’ in the 2024 Budget.