CB to checkmate COVID-19 crisis with more cash

• Announces further extraordinary measures to boost liquidity for banks to urgently support COVID-hit businesses, individuals
• Expects banks to provide uninterrupted credit flows for economic recovery in “unprecedented times” 
• Additional funding to be approved for banks to provide more working capital, other loans until June 2021
• Annual assessment of systemically important banks to be waived for 2020, but banks advised to closely monitor liquidity, use for economic regeneration activities

The Central Bank yesterday announced further extraordinary measures to boost new funding and liquidity to support the private sector and spur demand in the economy impacted by the COVID-19 pandemic.

The decision by the Monetary Board was in the wake of the possible adverse impact on liquidity and other key performance indicators of licensed commercial banks and licensed specialised banks (licensed banks), due to the implementation of the credit support scheme to assist COVID-19 hit businesses and individuals, and the need to meet other urgent liquidity needs of banks. The Monetary Board said it considers it imperative to strengthen the liquidity positions of banks.

It decided to implement what was described as "extraordinary regulatory measures" to strengthen the liquidity positions of licensed banks, under the provisions of the Banking Act and the Monetary Law Act, to ensure the continued supply of credit and to meet urgent liquidity needs of banks during these exceptional times.

The deadline for application for the Rs. 50 billion re-financing scheme-led working capital and broader moratorium support ends on Friday. The Monetary Board moves come amidst increasing concern over the delay in banking support for COVID-19 hit businesses and individuals. The latest measures also follow the Monetary Board cutting policy rates four times so far this year and a slew of other moves. 

Apart from undertaking 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, the Monetary Board yesterday also announced further measures. 

Up to 30 June 2021, the Monetary Board will 

1)Permit licensed banks to consider certain assets as liquid assets in the computation of the Statutory Liquid Assets Ratio (SLAR) subject to conditions,

2)Reduce the minimum requirement of Liquidity Coverage Ratio and Net Stable Funding Ratio to 90% with enhanced supervision and frequent reporting, and 

3)Enable licensed banks to avail liquidity through the Sri Lanka 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.

Concurrently, the Monetary Board, with a view to strengthening the liquidity position of banks under these exceptional circumstances has decided to restrict certain discretionary payments of licensed banks, such as declaring cash dividends or repatriation of profits, engaging in share buy backs, increasing management allowances and payments to the Board of Directors for a limited period until 31 December 2020. 

Further, licensed banks are required to exercise prudence and refrain to the extent possible when incurring non-essential and capital expenditure during the above-mentioned period.

In the meantime, considering the resource constraints currently faced by banks and prevailing market conditions due to the COVID-19 outbreak, the Monetary Board has also decided to waive the annual assessment of Domestic Systemically Important Banks (D-SIBs) for the year 2020, and maintain the already designated D-SIBs as published in December 2019, for year 2020 as well.

Despite new supportive measures, the Monetary Board strongly advised Boards of Directors and the senior management of licensed banks to closely monitor the liquidity positions of the respective banks, and use liquid funds accruing as a result of these Extraordinary Measures prudently for the intended purposes. 

Through these extraordinary measures, the Central Bank expects the banks to provide uninterrupted credit flows in a prudent manner to revive economic activities, where in turn all sectors including the financial sector of the economy will benefit. The Central Bank also solicited the support of all stakeholders of the banking sector, including shareholders, to achieve the desired outcomes of all measures taken so far during these unprecedented times.