Large banks to lock aside additional capital | Daily News


 

Large banks to lock aside additional capital

The Central Bank of Sri Lanka recently imposed the applicable Higher Loss Absorbency Requirements (HLAR) on 4 banks. Banks are categorized into buckets with a higher number indicating a higher loss absorbency requirement.

Bank of Ceylon and Commercial Bank of Ceylon are in bucket 2 with an HLAR of 1.5 percent. Hatton National Bank and People’s Bank are in bucket 1 with an HLAR of 1 percent. The new regulations are part of the BASEL requirements. Banks will be required to maintain the capital adequacy ratio currently maintained by licensed banks with the additional HLAR. The Common Equity Tier 1 including Capital Conversion Buffer will be 7 percent plus the applicable HLAR. Total Tier 1 including Capital Conversion Buffer will be 8.5 percent plus the applicable HLAR. Total Capital Ratio including Capital Conversion Buffer will be 12.5 percent plus the applicable HLAR.

None of the Banks will have to raise capital as the additional requirements were signaled much earlier to Domestically Systemically Important Banks and all of them are compliant with the HLAR. Banks with leverage ratios exposures over Rs 400 billion will have additional disclosure requirements to the Central Bank. Banks will have to disclose multiple indicators of their dealings with other financial institutions. Lending, deposits, capital holdings, and securities financing transactions of other financial institutions will have to be disclosed. Banks will have to make additional disclosures on the complexity and financial institution infrastructure.

Additional requirements have also been imposed on the repurchase and reverse repurchase of dealer direct participants in scrip-less treasury bonds and bills. These requirements will be not applicable to transactions with the Central Bank. Securities shall be valued at ‘the dirty price’ corresponding to the average buying and selling yield quotes for relevant security as given in the Daily Summary Report.

The Dealer Direct Participants will have to ensure at the time of entering into the repurchase agreement that the market value of the securities covers the repurchase value and the interest that would accrue over the tenure of the repurchase agreement. The Central Bank has set additional minimum haircuts beginning at 4 percent for securities maturing in less than a year up to 12 percent for securities maturing in more than 8 years.

On December 19 directives were issued requiring that from next year the boards of directors of licensed banks shall disclose their interests and interests of any close counterparty to the Central Bank certified by a justice of the peace. Officers will be required to disclose their religion and will have to file additional documents if they refuse to do so. Bank directors will have to wait 6 months before swapping positions on bank boards.

New directives will see that for non-performing loans residential property valuations cannot be more than five years old and other credit facilities at four years old.


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