Depositors will be entitled to benefits of the Central Bank’s (CB) mandatory deposit insurance scheme from next January, while the regulator has reduced commercial banks ’ loan loss provisions by 0.5%, CB officials said.
Ajith Nivard Cabraal
“Under the provisions of the Monetary Law Act with effect from Friday we implemented this as the Sri Lanka Deposit Insurance Scheme (SLDIS). The initial capital of the scheme of Rs. 1.1 billion (approximately) will be provided by the CB and while member banks and finance companies will participate in this scheme on a mandatory basis from 1st October 2010, depositors will be after 1st January 2012,” Ajith Nivard Cabraal Governor CB told the media on Thursday.
SLDIS’ premium to be levied on eligible deposits will range between 0.10% and 0.15% per annum and will be required to be paid by member institutions on a monthly/quarterly basis. all licensed banks and registered finance companies. All deposits excluding deposits of member banks and finance companies, Government of Sri Lanka, shareholders, directors, key management personnel, other related parties, deposits held as collateral against any accommodation granted and deposits falling within the meaning of abandoned property in terms of the Banking Act and dormant accounts in terms of the Finance Companies Act, will be considered as eligible deposits under SLDIS, a CB statement said.
It said in the event the licence or registration of a member institution is suspended or cancelled by the Monetary Board, depositors will be compensated up to a maximum of Rs. 200,000 per depositor. “All the premia will be managed by the Monetary Board, but SLDIS will be distinctly separate from the CB while its liability will be limited to the extent of the balance in the fund,” Mr. Cabraal noted.
He also said that the careful assessment of the current financial landscape at present, suggests that the risk of any potential downturn in the domestic and global economic activities has substantially abated, which is why the CB has decided to reduce the general provision on performing loans and advances and credit facilities from the current 1% to 0.5% by December 31.
The banking sector saw an 11.6% credit growth in August. According to CB data, this sector is so far accountable for Rs 2.3 trillion deposits and Rs 1.6 trillion loans.