Banking Sector consolidation in the offing | Daily News


Banking Sector consolidation in the offing

A. A. M. Thassim
A. A. M. Thassim

Director Bank Supervision, Central Bank, A. A. M. Thassim said yesterday, that the regulation to be enacted would likely make the banking sector consolidate. Thassim was speaking at the Association of Professional Bankers AGM held at the Hilton Colombo.

He said, “The specialized banks will have to build up to Rs. 7.5 billion in 2020. Capital requirements will rise. Foreign banks, if they are over Rs. 100 billion, will have to keep Rs. 10 billion capital and smaller ones at Rs. 5 billion. What happens if you do not keep this? No forbearances will be given. Restrictions will be applied for non-compliance. We presume that this enhanced capital requirements will push the banking sector towards consolidation. Otherwise, you cannot raise funds.

“Domestically systemic important banks (D SIBS) framework is to change. We are going to be on par with the BASEL committee on banking supervision. We will convert Globally SIBS to D SIBS. Right now we consider Banks over 500 billion as DSIBS but going forward that will not be the case. We have to look at the interconnectedness, substitutability, complexity, and cross-jurisdictional activity.”

He said “The framework also talks about buckets. Within the D SIBS itself, you can have different thresholds. For example, we now have it that all D SIBS should have 1.5 percent more than the usual number. Going forward in this new framework you can have 1.5 percent for one bucket and the other bucket could be 2.5 percent.”

He said “In the last decade we have seen many conflicts in the banking industry. This is because of the share ownership issues.

We will bring these requirements; the directions are already drafted, hopefully shortly. We are also looking at the cross-holding. One bank shouldn’t have a controlling interest in another bank. There is no necessity for you to be representing the board of another bank.”

He added “I see all these marketing in the paper with chairman’s image that they are making all these profits but if you look at the ratios it is not as good as it was earlier. The Gross NPL is 4.9 percent.”

He said “We have already implemented BASEL 3 and we are par with the countries in the region. We have implemented BASEL and all four; The Capital, Liquidity, Net Stable Funding Ratio, and the Leverage Ratio.”

“We are on par with international requirements with regard to BASEL. All banks are compliant with the capital adequacy ratio.” He added “They have implemented SLFRS 9 and now we are coming with some reporting requirements. They will have to be addressed by the banks going forward. We have issued a guideline. Most regulators have been reluctant to issue a guideline. SLFRS has a lot of subjectivity to it. We are trying to reduce subjectivity through the guidelines.”

Banking groups are to face increased regulation with banking activity separated from other subsidiaries. Business areas of banking subsidiaries are to be limited in scope.

The definition of related parties is to be broadened and become dynamic in definition. Memorandums of Understanding with other regulatory organizations namely the SEC and Insurance Regulatory Commission will see increased information sharing. D SIBS will have to submit recovery plans on a yearly basis to the regulator.

The Banks are being encouraged to expand into the broader South Asian region. Under the new proposed legislation, the regulator will have an increased capacity to take action against non-compliant banks.

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