Funding sources broadened, loans offered to lure more forex into Special Deposit Account

• New measures announced after CB disclosing an unimpressive US $ 87mn was attracted since account launch 3 months ago
• New measures effectively increase amount of foreign currency retainable by a person by 50% 

Sri Lanka broadened the funding sources that can be collected into the Special Deposit Account (SDA) and made possible cash-backed loans against such deposits, in a further attempt to lure foreign currency deposits, as the Monetary Board and government work together to bolster the country’s foreign currency reserves.

The new measures to attract more foreign currency funds came just days after the Central Bank announced it had collected unimpressive US $ 87 million during the three months since the new deposit account was introduced on April 8, inviting a broad section of individuals and institutes to place their excess foreign currency at rates between 1-2 percent higher than the normal rate.

In a fresh announcement, the Foreign Exchange Department at the Central Bank this week allowed any person who had arrived in the country on or after January 1, 2020, to open an SDA out of foreign exchange legitimately acquired or brought in to Sri Lanka, subject to a declaration made to either the Sri Lanka Customs or to the authorised dealer, depending on the amount of foreign exchange one has brought in. 

Hence, according to the new measures, a person who has over US $ 15,000 foreign exchange or an equivalent amount in any designated foreign currency, can place his funds in an SDA, subject to a declaration made to the Sri Lanka Customs, while those who have less than or equal to US $ 15,000 must make the declaration to the authorised dealer when placing the deposit. 

The SDA, which takes the form of a foreign currency-denominated fixed deposit, pays an interest of one percent above the normal rate for six-month maturity and 2 percent above the normal rate for deposits with 12-month maturity. 

At a time the dollar yields and yields of other major currencies have either sunk near zero levels or negative levels, the yields offered to the SDA in the present context stand very attractive. 

The deadline to place deposits at the SDA lapses on October 7, 2020. 

Funds can be placed via a broader section of currencies from the United States dollars, euro, Sterling Pound, Australian dollars, Singapore dollars, Swedish kroner, Swiss franc, Canadian dollars, Hong Kong dollars, Japanese yen, Danish kroner, Norwegian kroner, Chinese renminbi and New Zealand dollars.

Meanwhile, the Central Bank guarantees the funds in the deposit could be “freely convertible and remitted outside Sri Lanka upon maturity”.

Further, the fresh measures also allow any person in or resident in Sri Lanka to open an SDA out of foreign currency notes in his possession, up to the limit of US $ 15,000, subject to the terms and conditions of the prevailing regulations and orders and subject to a declaration on the source of funds to an authorised dealer. 

This measure effectively increases the amount of foreign currency that can be retained by a person in or resident in Sri Lanka in his possession from US $ 10,000 to US $ 15,000, with effect from July 1. 

In a further attempt to attract foreign funds into SDAs, the Monetary Board has decided to allow the deposit holders to obtain loans from the authorised dealers, against the SDAs—often referred to as cash-backed facilities. 

While the Monetary Board has allowed the residents to obtain loans in Sri Lankan rupees, placing their SDAs as collateral, the non-resident SDA holders, who are eligible to obtain loans, could obtain loans as per the prevailing regulations listed down on the official website of the Foreign Exchange Department of the Central Bank via www.dfe.lk. 

Alternatively, the non-residents, who wish to obtain a loan against their SDAs, could acquire information either through the Foreign Exchange Department Director or from any authorised dealer in Sri Lanka.