A conference on Islamic Banking and Finance was held recently in Colombo where the discussions centered on how best Sri Lanka could be positioned to capture a slot in this fast growing market.
Ms Yvette Fernando, Director, Bank Supervision, Central Bank, responding to a query from the audience, said that any investor whether Islamic or otherwise, when they do not get a reasonable return on their investment from licensed banks, come to the Central Bank (CB) seeking relief. Thus the CB would introduce appropriate regulations to be applied to all the financial institutions to safeguard the interests of the investors.
The day-long programme was organized by the Chartered Institute of Management Accountants (CIMA) Sri Lanka Division and the Bar Association of Sri Lanka (BASL).
She said that regulation of financial institutions is important for high leverage, systemic importance, public confidence and the ultimate objective is to preserve the financial system stability.
She said the bank supervisors must set prudent and appropriate minimum capital adequacy requirements for banks that reflect the risks that the bank undertakes, and must define the components of capital, bearing in mind its ability to absorb losses.
The CB regulations include directions on maintenance of Capital Adequacy Ratios, ownership of issued capital carrying voting rights and determination on foreign participation in the share capital of a licensed bank, incorporated or established in Sri Lanka.
Ms Fernando said that in the case of credit risk management the bank supervisors must be satisfied that banks have a process that takes into account the risk profile of the institution, with prudent policies and processes to identify, measure, monitor and control credit risk (including counterparty risk).
Supervisors must be satisfied that banks establish and adhere to adequate policies and processes for managing problem assets and evaluating the adequacy of provisions and reserves.
Shibly Aziz, President BASL said that the Bar Association intends to partner with leading professional organizations so that they can provide a service to the business community not only to lawyers involved but also non-lawyers involved.
He said they feel that this is the correct time to do this as there is definite upsurge in the economy of Sri Lanka now and there was tremendous potential in Sri Lanka for Sharia compliant products.
Reyaz Mihular, Partner - Head of Advisory Services, KPMG Ford, Rhodes, Thornton & Co speaking on ‘Accounting for Islamic Finance’ said that the primary reasons for Islamic finance standards are to provide a benchmark for the industry, shape the market and define characteristics of the industry and promote sophistication and maturity of the industry
He said Islamic banking and finance practices are conceptually different from conventional practices. The other speakers were: Dr M A M Shukri, Director, Naleemiah Institute of Islamic Studies; Faizal Salieh, Managing Director, Amana Investments Ltd; Ishrat Rauff, Managing Director/CEO, Adl Capital Ltd; Suresh R I Perera, Principal – Tax and Regulatory, KPMG Ford Rhodes Thornton & Co; and Javed Mansoor, Attorney at Law. |
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