Sri Lanka to raise foreign funding via securitising remittance surrenders

• CB calls for RFPs from banks and investors  for Securitised Financing Arrangement
• Expects to securitise 10% of remittance income mandated for surrender by licensed banks
• SL annually receives around US$ 7bn in remittances

Sri Lanka last Friday announced plans to securitise the remittance inflows surrendered to the Central Bank in a bid to raise medium term foreign currency funding aimed at easing the pressure on the domestic foreign exchange market until inflows from tourism and other sources normalise.  

To this end the Central Bank is calling for Request For Proposals (RFPs) from banks, institutional investors and investment houses for consideration, in order to be appointed as counterparts or arrangers for what is called a Securitised Financing Arrangement (SFA). 

Securitisation is an arrangement often carried out in banks and financial markets where the issuer pledges a pool of selected assets, which generates receivables for raising money at a negotiated rate and the repayment happens through the cash flow receivables underlying the asset. 

The Central Bank seeks to securitise the 10 percent of remittance income mandated for surrender by licensed banks to the Central Bank. And the money raised through the securitisation will be used to financing the expenditure approved in the budget. 

Sri Lanka annually receives around US$ 7.0 billion in remittances and the continuous ascent seen in such inflows for 13 months through May this year ended when the country confronted with foreign exchange shortages from around June, re-channeling part of the inflows via informal channels operating outside the banking sector. 

But the Central Bank is of the belief that the recent measures taken to re-route such inflows through banking channels would result in an increase of such inflows in the coming months. “On the strength of this steady foreign currency inflow, the government of Sri Lanka intends to raise medium-term foreign currency financing, by securitising foreign currency receipts of the Central Bank of Sri Lanka under the mandatory sale of 10 per cent of workers’ remittances converted into Sri Lankan rupees by licensed banks”, a statement released calling for RFPs by the Central Bank stated. Under the mandatory sale requirement that came into effect on May 28, the Central Bank had collected on average US$ 25 million a month in foreign currency. 

The SFA would be denominated in US dollar, Euro, Chinese Renminbi, Japanese Yen, or in any other Gulf Cooperation Council currency. 

“The SFA is expected to be raised at a fixed or a floating rate for a medium-term tenure. Repayment can be in bullet or in tranches, or on a reducing balance linked to the securitised arrangement, while interest can be paid periodically, as mutually agreed”, the Central Bank said.