ECONOMYNEXT – Sri Lanka is tightening governance of state banks to reduce state bank lending, especially to loss-making state enterprises, which have been used for off-budget spending in the past, a finance ministry statement said.
“The balance sheets of state-owned banks have been used to absorb losses of State-owned Enterprises and help finance large fiscal deficits, thereby delaying reforms and accumulating debts, which contribute to the economic crisis,” the statement said.
State banks in the future will finance SOEs on commercial terms, competing with private sector banks. Any dollar loans will be in line with their net open position exposures.
Loans to loss making SOEs beyond 5 percent of equity will require special board approval and risk management sign off.
Any loans against Treasury guarantees will be subject to a ceiling under an upcoming fiscal management law.
Bank of Ceylon and People’s Bank capital will be boosted using a 2024 budget allocation of 450 billion rupees and also capital injections from institutional investors.
Independent directors who are not politically exposed persons under Financial Intelligence Unit guidelines will be appointed.
Auditors with international links listed in a central bank list will be appointed in consultation with the state Auditor General from 2025.