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| Sunday, 4 September 2005 |
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CB enhances minimum statutory capital requirements The Central Bank of Sri Lanka (CBSL) recently enhanced the Minimum Statutory Capital Requirement for all LCBs and LSBs. According to a report from Asha Phillip Securities Ltd, the objective of the move is to achieve a robust and stable financial system. The exercise is expected to increase the public confidence over the Banking system and also would minimise the risk to depositors. Under the new statutory requirement the minimum capital requirement for LCBs will increase to Rs.2,500 million from the current Rs.500 million benchmark while the minimum capital requirement for LSBs will increase to Rs.1,500 million from the current Rs.200 million benchmark. The existing Banks have been given time till 2007 to meet the new requirement while ensuring that they meet at least 50% of the requirement at the end of 2006 and remaining 50% in 2007. However, the new requirement is in force with immediate effect for any new entrant. According to CBSL the term capital is referred to be the Core Capital, which constitutes the Share Capital as well as the Reserves. The new requirement would infuse more capital in to banks' that fall short in terms of Rights Issues, Bonus Issues or by Private Placements. The issue of fresh shares would dilute the bank's earnings per share in the short run. However, financing of the shortfall capital requirement will depend on the Banks' ability to raise capital in the market. As a result the smaller banks may find it difficult to raise the required funds at a low cost. The move may also lead to acquisitions and mergers of the small banks who will find difficult to meet the minimum requirement. The new capital requirement would affect the smaller banks. Nonetheless it would bring more stability and confidence to the entire banking sector as a whole in the long run. At present there are 22 LCBs which includes two State banks and 11 Foreign Banks and 14 LSBs out of which seven LCBs and three LSBs are quoted in the Colombo Stock Exchange. |
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