CB to ease regulations to allow firms to raise foreign funds

• Says will also fast track approval process 

Central Bank will ease the regulatory environment for corporate sector to raise foreign funds, as the monetary authority is exploring options to woo foreign exchange as the country enters into a stretched period of troubles in its external front due to prolonged effects of the virus which have impeded foreign exchange inflows from tourism to exports. 

To this end, the Central Bank, which also acts as the country’s watchdog for foreign currency transactions in and out of its shores, has decided to cut regulation to make it relatively easy for the country’s private sector to raise money from foreign sources. 

“We are also expecting to relax the regulatory environment enabling the financial sector and the corporate sector to mobilise capital from abroad by fast tracking the approval process,” said Central Bank Governor Prof. W.D. Lakshman.

Sri Lanka’s corporate sector, predominantly led by the banks, have raised funds in the form of both equity and debt since the end of the first coronavirus wave as various international funds with excess liquidity have been going on shopping seeking companies with sound balance sheets in the frontier markets to add to their investment portfolio. 
When banks borrow foreign currency, until they find lending opportunity, they invest such moneys in foreign currency denominated government securities such as Sri Lanka Development Bonds (SLDBs) and Sri Lanka International Sovereign Bonds (SLISBs), which provide them natural hedge against foreign currency. 

However, the Central Bank in April suspended banks from buying SLISBs until further notice to prevent volatility in the exchange rate as international bonds were a favourite mode of foreign investment for banks to park their excess foreign currency liquidity. 

In April, the Monetary Board issued fresh criteria when finance companies could raise foreign borrowings, linking such borrowings to a percentage of assets based on the purpose for which such funds are raised for and the different approvals needed to be sought under each level, and said that all such borrowings must be for two years or more.