Central Bank unveils reforms for State banks to boost governance, regulations

• CBSL Chief Dr. Nandalal Weerasinge says guidelines to appoint Directors to State banks will be issued
• Expects Banking (Amendment) Bill to pass soon in Parliament

The Central Bank announced this week its intention to forward guidelines for appointing the State bank Board of Directors to the Finance Ministry.

“For State-owned banks, which account for 48% of the banking sector assets, the Central Bank expects to issue guidance to the Finance Ministry on appointments to the Board of Directors of such banks,” the Central Bank Governor Dr. Nandalal Weerasinghe said unveiling the ‘Annual Policy Statement 2024’ last week.

He said the development of a framework will strengthen State bank governance by mandating that a majority of independent members serve on their Boards. 

“Nominations for the Board of Directors and senior management will be made by the banks’ nomination committees using open search procedures with specific standards for professional expertise and independence,” he added.

The assessment of the fitness and propriety of directors, chief executive officers and key management personnel of Licensed Commercial Banks (LCBs) is to be strengthened through the granting of approval for persons with relevant qualifications and experience, thereby improving the composition and competencies of the Board of Directors

“The proposed amendments to the Banking Act will strengthen the legal and regulatory framework of licenced banks,” he said, adding that the Banking (Amendment) Bill is likely to be enacted in Parliament in early 2024.

The key amendments proposed include strengthening minimum licensing requirements, corporate governance, shareholder suitability, subsidiarisation of foreign banks, as deemed necessary, bank ownership, acquisitions, mergers and consolidation, disposal of non-financial subsidiaries, consolidated supervision, accounts and audit, proportionality, large exposures, and related party transactions.