Thursday Nov 28, 2024
Thursday Nov 28, 2024
Tuesday, 14 November 2023 00:38 - - {{hitsCtrl.values.hits}}
President and Finance Minister Ranil Wickremesinghe yesterday via the 2024 Budget announced plans to open up the ownership of two State banks as well as capital support to ensure greater stability.
“The Government is keen to ensure that all prudent measures are taken for long-term banking stability. To this end, for systemically important banks, an independent asset quality review supported by the IMF program was conducted. The preliminary results of this asset quality review indicate the need to build additional capital accumulation on a prudent basis,” the President said during the 2024 Budget presentation in Parliament.
He proposed to allocate Rs. 450 billion to support the capital improvement process in the banking system. “The proposed provision to improve the capital of the banking sector will ensure the stability of the banking sector in the long run,” he said.
The President also proposed that 20% of the shares of the two large State-owned banks should be given to strategic investors or the public to improve capital and support the future growth of the two State-owned banks to reduce the burden on taxpayers’ funds.
In parallel, 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. Amendments to the Banking Act will provide the legal framework for these reforms and are expected to be passed in early 2024.
The President said bank recapitalisation and external debt restructuring will require the issuance of new debt instruments with longer maturities. Therefore, Budget allocations are needed to settle the existing debt and the borrowing limit needs to be increased. Accordingly, he proposed to increase the borrowing limit by Rs. 3.45 trillion from Rs. 3.9 trillion to Rs. 7.35 trillion.
Wickremesinghe said following the completion of the domestic debt restructuring process, the overall macroeconomic stability and stability of the financial sector will be further strengthened.
As part of the restructuring of International Sovereign Bonds under the External Debt Restructuring Process, Sri Lanka’s net debt is reduced to its present value. He said USD denominated new financial instruments should be issued to settle existing international sovereign bonds. Accordingly, for the settlement of existing International Sovereign Bonds, budget allocations are required to record the transaction in the Government book of accounts. For the implementation of foreign debt restructuring and settlement of International Sovereign Bonds under foreign debt restructuring, the President proposed to allocate Rs. 3 trillion through 2024 Budget.
