Banking Amendment Bill to see passage in early 2024

• Amendments to include broad-based changes to many areas 
• Guidelines to be issued on appointment of state bank directors
• Act’s ambit could extend to licensed finance companies as and when appropriate

As part of a slew of policy reforms that are in the pipeline to improve both the resilience and corporate governance of the banks in the near and medium term, the existing Banking Act, which is currently being amended, could see its passage through Parliament in the early part of 2024.

Sri Lanka’s licensed banks currently function based on the provisions in Banking Act No. 30 of 1988.

The Central Bank last week said it is already working on the act to further strengthen the sector’s legal and regulatory framework via the proposed amendments.

The amendments will cover a whole gamut of areas, including the strengthening of minimum licensing requirements, corporate governance, shareholder suitability, subsidiarisation of foreign banks as deemed necessary and bank ownership.

Besides, the amendments will also bring changes on how the banks go about consolidation via mergers and acquisitions, how they dispose of their non-financial subsidiaries, consolidated supervision, accounts and audit, proportionality, large exposures and related party transactions.

This is besides the enactment of what was referred to as Banking (Special Provisions) Act No. 17 of 2023 last year, for the purpose of defining resolution authority and resolution powers of the Central Bank.
The said act introduced financial safety net mechanisms and new resolution measures to be implemented in consultation with the government.

This act also facilitated the setting up of a separate department within the Central Bank to exercise its resolution authority and also granted statutory recognition to the Deposit Insurance Scheme, while drawing up a procedure for orderly winding up of licensed banks, should the need arises.

The act’s ambit on the resolution measures goes beyond the banks to cover the licensed finance companies, as and when appropriate.

Meanwhile, in a bid to improve corporate governance, the Central Bank will issue guidelines to the Finance Ministry on the appointment of directors to the state banks.

“Accordingly, a framework is to be developed to strengthen the governance of state banks, requiring their boards to have a majority of independent members and nominations for board and senior management to be made by the banks’ nomination committees, following open search procedures with clear requirements pertaining to professional experience and ensuring of independence,” the annual policy statement presented by the Central Bank said.

The state-owned banks account for 48 percent of the banking sector assets. This is amid taking broader measures to improve the composition and competencies of the board of directors of the licensed banks via assessment of fitness and propriety of directors, chief executive officers and key management personnel.