07 July 2022 CIRCULAR No. 02 of 2022MONETARY BOARDCENTRAL BANK OF SRI LANKACONCESSIONS TO AFFECTED BORROWERS AMIDST THE PREVAILING EXTRAORDINARY MACROECONOMIC CIRCUMSTANCESWith a view to meeting the challenges faced by businesses and individuals engaged in various economic sectors due to the prevailing extraordinary macroeconomic circumstances, the Central Bank of Sri Lanka (CBSL), requests licensed commercial banks and licensed specialised banks (hereinafter referred to as licensed banks) to provide the following concessions, to affected borrowers, on a need basis.These concessions are granted to devise suitable repayment arrangements based on the new repayment capacities of the borrower, on a case-by-case basis, while preserving banking sector stability by preventing any elevated strain on the financial system. Accordingly, this Circular is issued to provide broad guidelines with prudential requirements for consistent implementation across all licensed banks. Licensed banks may consider implementing these concessions through the Post COVID-19 Revival Units which have already been established in terms of the Circular No. 01 of 2022 issued on 24 March 2022.1 Concessions for performing credit facilities1.1 Licensed banks are required to provide appropriate concessions (i.e., grace period for capital or interest or both capital and interest or part of the capital or interest, re-structuring of credit facilities, or any other concession) for performing credit facilities of individuals or businesses (hereinafter referred to as borrowers) whose income or business has been adversely affected by the current macroeconomic conditions including those borrowers who were already subject to COVID-19 moratoriums. These concessions are expected to be provided to affected borrowers in all economic sectors, including but not limited to tourism, transportation, and Micro, Small and Medium scale Enterprises (MSME) engaged in business sectors such as manufacturing, services,


and Medium scale Enterprises (MSME) engaged in business sectors such as manufacturing, services, agriculture, and construction on a case-1


07 July 2022 CIRCULAR No. 02 of 2022MONETARY BOARD CENTRAL BANK OF SRI LANKAby-case basis, for a period of six months from the date of this Circular, based on the new repayment capacity/ viability of the borrower.1.2 In the case of regular installment loans, the licensed banks shall devise a mechanism to structure the repayment plan not exceeding the contracted instalment value of the existing credit facility or facilities, with an extended tenure, to match with the repayment capabilities of the borrowers. In the case of other credit facilities, the licensed banks shall devise a suitable mechanism to structure the repayment plan.1.3 In the case of Rupee facilities considered for the concessions, the interest rate applicable for the concessionary period (including the recovery period) shall not exceed the latest contracted rate of interest or the Standard Lending Facility Rate applicable on the date of this Circular (15.5%), whichever is higher, and shall be charged only on the amount considered for the concession. In the case of foreign currency facilities, licensed banks may charge a concessionary rate of interest rate as mutually agreed with the customer.2 Applicability of Concessions for Credit Facilities Granted under Refinance/Interest Subsidy Schemes2.1 Licensed banks shall seek necessary guidelines from the relevant agencies, and government authorities with regard to extending these concessions for credit facilities granted under various refinance or interest subsidy schemes, introduced by the government or other agencies.3 Facilitating Early Settlements3.1 In the case where any borrower wishes to fully settle any of the existing credit facilities, such borrower shall be given the opportunity to do so, without charging any additional fee, such as early settlement charges. In the case of lease facilities, recovery of future interest shall also be waived off.2


07 July 2022 CIRCULAR No. 02 of 2022MONETARY BOARD CENTRAL BANK OF SRI LANKA3.2 Licensed banks may also consider providing rebates for such early settlements, on a case- by-case-basis.3.3 Any borrower who is willing for an early settlement of credit facilities shall make a request to the respective licensed bank on or before 30.09.2022.4 Concessions for Non-performing Credit Facilities4.1 Licensed banks may consider providing appropriate concessions, including reschedulment for existing non-performing credit facilities over a longer period, on a case-by-case basis, considering the future repayment capacity/viability of such individuals and businesses/ projects.4.2 Licensed banks shall devise a suitable mechanism to structure the repayment plan.4.3 In the case of Rupee facilities, interest rate applicable for concessions granted to non- performing credit facilities, shall not exceed the latest contracted rate of interest or the current Standard Lending Facility Rate applicable as at the Circular date (15.5%), whichever is higher . In the case of foreign currency facilities, licensed banks may charge a concessionary rate of interest rate as mutually agreed with the customer.14.4 Licensed banks shall suspend recovery actions including parate execution and forced repossession of leased assets against all credit facilities that have been classified as non-performing on or after 01.01.2020, until 31.12.2022 in order to enable the borrowers to arrange timely repayments.4.5 In the case of recovery actions against SME paddy millers, banks may suspend recoveryactions including parate execution against any non-performing credit facilities, until 31.12.2022, provided that an agreement is reached between the borrower and the licensed bank on diverting sales proceeds of the upcoming harvesting season directly to the banks


1 The explanation on non-performing loans provided in the attached Guidelines of CASL states that “the revisedinterest rate cannot exceed 14.5%”. However, licensed banks should adhere with Section 4.3 of this Circular.3


07 July 2022 CIRCULAR No. 02 of 2022MONETARY BOARD CENTRAL BANK OF SRI LANKAvia a suitable mechanism to settle the existing pledge loans in full and/ or existing non-performing credit facilities (pail or full settlement).4.6 In case where a licensed bank has commenced or given notice of recovery action under the provisions of the Recovery of Loans by Banks (Special Provisions) Act, No. 04 of 1990 or Mortgage Act. No. 06 of 1949, as amended, or Finance Leasing Act, No. 56 of 2000, or any other relevant Act, in this regard, such recovery actions shall be suspended until 31.12.2022, on condition that the concerned licensed bank and the borrower reach a debt repayment agreement.4.7 Licensed banks shall defer passing new resolutions under the above Acts, for recovery of such loans and advances until 31.12.2022, on condition that the concerned licensed bank and the borrower reach a debt repayment agreement. In instances where resolutions for recovery actions have already been passed, auctioning of assets shall be suspended until 31.12.2022.4.8 In instances where there are on-going litigations in Courts relating to recovery, the borrower shall enter into an agreement in the Courts to avail these concessions.4.9 However, willful defaulters, defaults due to diversion of funds, defaults due to mismanagement and/ or frauds in the business and unviable projects shall not be considered for any of the above concessions.4.10 Licenced banks may continue the routine collection procedure/ recovery follow up without excessively contacting, visiting, or forcing the borrower.5 Reporting to the Credit Information Bureau5.1 Licensed banks shall not decline new loan applications from borrowers solely based on adverse CRIB records.5.2 Licensed banks shall develop a reporting modality, in consultation with CRIB, to report concessions granted to affected borrowers, if necessary.4


July07 2022 CIRCULAR No. 02 of 2022MONETARY BOARDCENTRAL BANK OF SRI LANKA6 Accounting Treatment and Impairment6.1 Licensed banks shall adhere to Sri Lanka Accounting Standards and the attached Guidelines read with the Addendum issued by the Institute of Chartered Accountants of Sri Lanka (CASL) with regard to accounting for the facilities considered for concessions.6.2 Licensed banks may seek advice from CASL and Auditors for additional guidance/ clarifications in this regard.7 Transparency of the Concessions7.1 Eligible borrowers may request for the above concessions on or before 31 July 2022 in writing or through electronic means.7.2 Licensed banks shall make the decision on whether to accept or decline the request made by the borrower within one month of the receipt of the request and duly inform the borrower of such decision.7.3 In the case of a rejection of request, licensed banks shall inform the borrower the reasons for such rejection and shall advise the borrower by and through the same letter that there is an opportunity for the borrower to appeal against such rejection to the Director, Financial Consumer Relations Department of the Central Bank of Sri Lanka.7.4 Licensed banks shall ensure that the borrowers are made aware of the structure of the deferment or restructuring of credit facilities and the applicable interest rate prior to approval and the consent of the borrower shall be obtained in writing or through electronic means.
5


07 July 2022 CIRCULAR No. 02 of 2022MONETARY BOARDCENTRAL BANK OF SRI LANKA8 Reporting RequirementLicensed banks shall report the details of concessions availed by their borrowers to the Bank Supervision Department, as at each month end, within 15 working days, commencing from 31 July 2022. A reporting format will be issued in due course.
'DrTPNandalal WeerasinglyeChairman of the Monetary Board and Governor of the Central Bank of Sri Lanka
6


CA ©THE INSTITUTE OF CHARTERED ACCOUNTANTS OF SRI LANKA28th June 2022Letter 01 - CASLMrs. V. A. A. N. De Silva,Director Bank Supervision,Central Bank of Sri Lanka,P O Box 590,Colombo 01.Dear Ms. De Silva,Re: Clarifications on Accounting TreatmentsWe refer to your letter dated 13th June 2022 on the above heading. At the outset, I wish to extend my appreciation to the Central Bank of Sri Lanka (CBSL) for referring the "Draft Guidelines to the licensed banks on providing concessions to affected borrowers" and requesting to clarify the accounting treatment as per SLFRS 9 - Financial Instruments.Please find below the clarification you sought as per the recommendation made by the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka).Issue 1: Interest RecognitionCA Sri Lanka does not provide any specific additional guidance on interest recognition and modification since specific provisions are available in SLFRS 9 - Financial Instruments.Please refer to SLFRS 9.5.4.1, SLFRS 9.5.4.2, SLFRS 9.5.4.3, SLFRS 9.3.3.2 and SLFRS 9.B3.3.6.Accordingly, Interest income can be recognised by the banks by using the Effective Interest Rate (EIR) applied to the gross carrying amount or the net carrying amount considering the stage into which that loan belongs at the time of the modification. In the event of modification (after the test of 10% assessment), the interest will be recognised based on the initial contractual rate while in the case of derecognition (due to substantial modification), interest will be recognized based on the new contractual rate. Thus, modification gain or loss has to be charged to profit or loss.Issue 2: Assessment of impairment and staging for performing facilities and non-performingAs per the draft guideline, Banks would do their own assessment of granting concessions to affected borrowers’ considering the prevailing extraordinary macroeconomic conditions. Accordingly, CA Sri Lanka recommends the banks to carryout assessment of Significant Increase of


Accordingly, CA Sri Lanka recommends the banks to carryout assessment of Significant Increase of Credit Risk (SICR) within Banks' own assessment (the internal risk management, policies, and methodologies) taking into the consideration of the number of restructurers/ re-shedulements, number of counts for the assessment of SICR, staging the loans into stages 1 to 2 and 2 to 3 in line with the standard as well as the CBSL Directive 13 and 14 and relevant sections of SLFRS 9. The proposed restructure/ reschedulement should not be excluded from the count.The relevant sections of SLFRS 9 - Financial Instruments are provided in SLFRS 9.5.5.9 - SLFRS 9.5.11.Further, CA Sri Lanka recommends the banks to revise their existing risk management considerations to assess SICR considering the prevailing economic conditions and potential deterioration without continuing to use the existing policies which were built on pre COVID trends and factors when economic factors had not deteriorated significantly.In addition to that, the following considerations are to be placed on performing loans and non-performing loans by banks.The Institute of Chartered Accountants of Sri Lanka | 30A, Malalasekera Mawatha, Colombo 7, Sri Lanka.Tel: +94 (0) 11 2352000 | Fax: +94 (0) 11 2588783 | E-mail: technical@casrilanka.orghttps://casrilanka.com


CA|®THE INSTITUTE OFCHARTERED ACCOUNTANTS OF SRI LANKAFor Performing Loans:• It is a rebuttable presumption that the current economic condition together with the requirement of further moratorium would indicate the Significant Increase in Credit Risk (SICR).• It is necessary to consider the financial strength of the borrower.• It is necessary to consider number of restructures including previous moratoriums into the account of the proposed restructure.• The increased economic uncertainty about potential future economic scenarios and their impact on credit losses may require banks to explicitly consider additional economic scenarios when measuring ECLs [SLFRS 9.B5.5.42].• Existing ECL models use historical experience to derive links between changes in economic conditions and customer behaviour, and ECL parameters such as loss rates, probabilities of default and loss given default. These historical relationships are unlikely to remain stable in times of increased economic uncertainty.For Non-Performing Loans:A staging issue would not arise since the category of loans is already in stage 3. However, if the bank is extending the repayment plan based on its own assessment, that could result in additional impairment, given that the revised interest rate cannot exceed 14.5% and recovery action cannot be taken until 31st December 2022.Issue 3: Recommendation on section 6. 2As per CBSL draft guideline, section 6.2 has been drafted as "Licensed banks are required to provide a minimum impairment charge of 2.0% on top of existing Stage 1 or 2 impairments for credit facilities that are considered as modifications". Due to the ambiguity of the wording, CA Sri Lanka is to seek clarification from CBSL on the wording relating to this requirement. Nevertheless, CA Sri Lanka commented section 6.2 of the proposed guideline under two scenarios as below:Scenario 01:Based on assessment of SICR/default if the loans to be restructured/ rescheduled are moved to stage 2 from 1 or Stage 3 from


if the loans to be restructured/ rescheduled are moved to stage 2 from 1 or Stage 3 from stage 2 the impairment against such loans will increase compared to existing impairment against the respective loans. If such increase is 2% higher than existing impairment such increase to be considered as normal change in impairment and recognized in the Profit or Loss statement.Scenario 02:If the banks are required to record additional 2% over and above the increase recorded as per scenario 1 even after stage shifting, Accounting Standards does not permit recording such impairment.This explanation is provided purely based on the limited facts and information provided by you and as such the Institute of Chartered Accountants of Sri Lanka takes no responsibility if the explanation would have been different had more information been available. Further, the application of the Sri Lanka Accounting Standards requires exercise of judgement, therefore, the ultimate responsibility for the recognition, measurement, presentation and disclosures of any transaction rests with the preparers of the financial statements. In providing this clarification. We have exercised due care and diligence and therefore we believe that the clarification given herewith is appropriate.Thank you,Yours sincerely,THE INSTITUTE OF CHARTERED ACCOUNTANTSOF SRI LANKAManil JayesingheCHAIRMAN - ACCOUNTING STANDARDS COMMITTEEThe Institute of Chartered Accountants of Sri Lanka | 30A, Malalasekera Mawatha, Colombo 7, Sri Lanka.Tel: +94 (0) 11 2352000 | Fax: +94 (0) 11 2588783 | E-mail: technical@casrilanka.orghttps://casrilanka.com


CA ©THE INSTITUTE OF CHARTERED ACCOUNTANTS OF SRI LANKALetter 02 - CASL6th July 2022Mrs. V. A. A. N. De Silva, Director Bank Supervision, Central Bank of Sri Lanka, P O Box 590, Colombo 01.Dear Ms. De Silva,Re: Clarifications on Accounting TreatmentsThis is in reference to the letter that CA Sri Lanka sent to Bank Supervision at the Central Bank of Sri Lanka on 28th June 2022 about the aforementioned subject.Hereby we need to clarify that re-profiling of performing loans where the quantum of the loan repayment is not less than what was there before the re-profiling would not generally cause a Significant Increase of Credit Risk. However, it is necessary to evaluate the condition of the underlying business if these loans have been under moratorium.This explanation is provided purely based on the limited facts and information provided by you and as such the Institute of Chartered Accountants of Sri Lanka takes no responsibility if the explanation would have been different had more information been available. Further, the application of the Sri Lanka Accounting Standards requires exercise of judgement, therefore, the ultimate responsibility for the recognition, measurement, presentation and disclosures of any transaction rests with the preparers of the financial statements. In providing this clarification. We have exercised due care and diligence and therefore we believe that the clarification given herewith is appropriate.Thank you,Yours sincerely,THE INSTITUTE OF CHARTERED ACCOUNTANTSOF SRI LANKA
Manil JayesingheCHAIRMAN - ACCOUNTING STANDARDS COMMITTEE
The Institute of Chartered Accountants of Sri Lanka | 30A, Malalasekera Mawatha, Colombo 7, Sri Lanka.Tel: +94 (0) 11 2352000 | Fax: +94 (0) 11 2588783 | E-mail: technical@casrilanka.orghttps://casrilanka.com


MONETARY BOARDCENTRAL BANK OF SRI LANKA3 / January 2023 BANKING ACT DETERMINATION No. 01 of 2023DEFINITION OF LIQUID ASSETS UNDER SECTIONS 86 AND 76J (1) OF THE BANKING ACT, NO. 30 OF 1988, AS AMENDEDIn terms of Sections 86 and 76J( 1) of the Banking Act, No. 30 of 1988, the Monetary Board has determined below mentioned assets shall be treated as liquid assets in the computation of the Statutory Liquid Asset Ratio of the Licensed Commercial Banks and Licensed Specialised Banks, respectively:(i) Qualifying non-financial corporate debt securities; and(ii) Qualifying non-financial common equity shares.(i) and (ii) are as defined in Banking Act Directions No 01 of 2015 on Liquidity Coverage Ratio under Basel III Liquidity Standards for Licensed Commercial Banks and Licensed Specialised Banks.Dr. PNSndaiai WeerasingheChairman of the Monetary Board andGovernor of the Central Bank of Sri Lanka


18 May 2023MONETARY BOARDCENTRAL BANK OF SRI LANKABANKING ACT DIRECTIONSNo. 04 of 2023MARGIN REQUIREMETNS AGAINST IMPORTSIssued in terms of the powers conferred by Sections 46(1) and 76(J)( 1) of the Banking Act No. 30 of 1988, as amended.Banking Act Directions No. 03 of 2022 dated 19 May 2022 on Margin Requirements Against Imports and Banking Act Directions No. 02 of 2023 dated 17 February 2023 on Amendment to the Banking Act Directions No. 03 of2022 on Margin Requirements Against Imports are hereby revoked with immediate effect.Dr. P Nahdalal WeerasingheChairman of the Monetary Board and Governor of the Central Bank of Sri Lanka


No. 01 of 2023 February02 2023MONETARY BOARDCENTRAL BANK OF SRI LANKA BANKING ACT DIRECTIONSRESTRICTIONS ON DISCRETIONARY PAYMENTS OF LICENSED BANKSThe Monetary Board of the Central Bank of Sri Lanka (CBSL), having considered the possible adverse impact on liquidity and capital position of licensed commercial banks and licensed specialised banks (hereinafter referred to as licensed banks) due to the prevailing macroeconomic conditions and the importance of maintaining appropriate levels of liquidity and capital levels to ensure sustainability in licensed banks, hereby issues these Directions on restrictions on discretionary payments of licensed banks.1. Empowerment1.1In terms of Section 46(1) of the Banking Act, in order to ensure the soundness of the banking system, the Monetary Board is empowered to issue Directions to all licensed commercial banks, regarding the manner in which any aspect of the business of such bank or banks is to be conducted.1.2In terms of Section 76 J (1) of the Banking Act, the Monetary Board is empowered to give Directions to licensed specialised banks or to any category of licensed specialised banks, regarding the manner in which any aspect of the business of such banks is to be conducted.2. Scope of Application2.1These Directions shall be applicable to every licensed bank incorporated in Sri Lanka and every licensed bank, which is a branch of a bank incorporated or established outside Sri Lanka, on a standalone basis.3. Restrictions on Discretionary Payments3.1Licensed banks shall give due consideration to the requirements of the Banking Act Direction No. 01 of2016 on Capital Requirements under Basel III for Licensed Banks, expected assets growth, business expansion and the potential impact of the prevailing macroeconomic conditions when deciding on payments of cash dividends and repatriation of profits for the year 2022.


No. 01 of 2023 February02 2023MONETARY BOARDCENTRAL BANK OF SRI LANKA BANKING ACT DIRECTIONS3.2 Licensed banks shall inform the Director of Bank Supervision, the Board approved detailed assessment carried out in deciding the payments of cash dividends and repatriation of profits for the year 2022, prior to payment of such dividend/repatriation of profits.3.3 Licensed banks shall defer payment of cash dividends and repatriation of profits for the year 2023, until the financial statements/interim financial statements for the year 2023 are finalized and audited by its External Auditor.3.4 Licensed banks shall adhere to the following with immediate effect, until 31 December 2023.(a) Refrain from buying-back of its own shares.(b) Refrain from increasing management allowances and payments to Board of Directors.(c) Refrain from incurring non-essential and/or non-urgent expenditure such as advertising, business promotions, gift schemes, entertainment, sponsorships, travelling, contesting for awards/trophies, and have a Board approved policy to rationalise if such expenditure is to be incurred.(d) Exercise extreme due diligence and prudence when incurring capital expenditure, if any.3.5 Licensed banks shall form a Board level Sub Committee to operate during the years 2023 and 2024, entrusting the responsibility of evaluating and approving, non-essential and/or non-urgent expenditure and/or capital expenditure to be incurred by the bank, if any.4. Effective Date 4.1These Directions shall be implemented with immediate effect.Dr. P Nandalal WeerasingheChairman of the Monetary Board and the Governor of the Central Bank of Sri Lanka


17 February 2023MONETARY BOARDCENTRAL BANK OF SRI LANKA BANKING ACT DIRECTIONSNo. 02 of 2023AMENDMENT TO THE BANKING ACT DIRECTIONS NO 03 OF 2022 ON MARGIN REQUIREMENTS AGAINST IMPORTSIssued in terms of the powers conferred by Sections 46(1) and 76(J)(1) of the Banking Act No. 30 of 1988, as amended.The provisions of the Banking Act Directions No 03 of 2022 on Margin Requirements Against Imports shall be applicable to the newly added 64 HS Codes specified in Annex I, with immediate effect.The existing list of the HS Codes subject to Margin Requirement remains unchanged.Dr. P Nandalal WeerasingheChairman of the Monetary Board and Governor of the Central Bank of Sri Lanka


April25 2023MONETARY BOARDCENTRAL BANK OF SRI LANKA BANKING ACT DIRECTIONSNo. 03 of 2023AMENDMENTS TO THE BANKING ACT DIRECTIONS NO 01 OF 2023 ONRESTRICTIONS ON DISCRETIONARY PAYMENTS OF LICENSED BANKSIn the exercise of the powers conferred by Sections 46(1) and 76(J)(1) of the Banking Act, No. 30 of 1988, as amended, the Monetary Board of the Central Bank of Sri Lanka hereby issues the following amendments to the Banking Act Directions No 01 of 2023 on Restrictions on Discretionary Payments of Licensed Banks.Direction 3.4 (b) shall be replaced with the following:3.4 (b)(i) Refrain from increasing management allowances to the Chief Executive Officer and Key Management Personnel and payments to Board of Directors, unless in the case of management allowances, the increase is recommended by the Board Human Resources and Remuneration Committee and approved by the Board of Directors, giving due consideration to:(a) the expected assets growth;(b) compliance with requirements of the Banking Act Direction No. 01 of 2016 on Capital Requirements under Basel III for Licensed Commercial Banks and Licensed Specialised Banks;(c) compliance with minimum prudential liquidity ratios, viz., Statutory Liquid Assets Ratio, Liquidity Coverage Ratio and Net Stable Funding Ratio at all times; and(d) whether the cost of the proposed management allowances is within the budgetary allocation of the bank for 2023.3.4 (b)(ii) Licensed banks shall inform the Director of Bank Supervision, the detailed assessment carried out by the Board of Directors in deciding on increasing allowances to the Chief Executive Officer and Key Management Personnel, 14 days prior to effecting such decision along with the certified copies of extracts of minutes of the respective meeting/s.Dr. P Na nd a l ai Weerasinghe Chairman of the Monetary Board and the Governor of the Central Bank of Sri Lanka


25 August 2023No. 01 of 2023MONETARY BOARDCENTRAL BANK OF SRI LANKAMONETARY LAW ACT ORDERMAXIMUM INTEREST RATES ON RUPEE DENOMINATED LENDING PRODUCTSIssued under Section 104( 1 )(b) of the Monetary Law Act, No. 58 of 1949, as amended.The Central Bank of Sri Lanka (CBSL) has adopted several policy measures in the recent past such as reduction of policy interest rates and the statutory reserve ratio, thereby facilitating a reduction in market interest rates. Despite the considerable easing of monetary conditions, interest rates on lending products of certain financial institutions continue to remain excessive and are not in line with the current monetary policy stance, posing challenges for individuals and businesses. Accordingly, the Monetary Board hereby issues an Order on the interest rates applicable on Sri Lanka Rupee (LKR) denominated lending products of licensed commercial banks (LCBs) and licensed specialised banks (LSBs), hereinafter referred to as licensed banks.1. Empowerment under the1.1 In terms of Section 104(1 )(b) of the Monetary Law Act,Monetary Law Actthe Monetary Board may from time to time fix the maximum rates of interest which licensed banks may charge for different types of loans or other credit operations.2. Interest rates on LKR2.1 Every licensed bank shall reduce the followingdenominated lendingproduct-wise lending rates at least to the levels outlinedproductsherein, with immediate effect:(i) Interest rates on pawning facilities to 18 per cent per annum;(ii) Interest rates on pre-arranged temporary overdrafts to 23 per cent per annum; and,(iii) Interest rates on credit card advances to 28 per cent per annum commencing the next billing cycle.1


25 August 2023
3. MonitoringMONETARY BOARDCENTRAL BANK OF SRI LANKAMONETARY LAW ACT ORDER No. 01 of 20232.2 Every licensed bank shall reduce the annual nominal interest rates applicable for all new and existing LKR denominated lending products, excluding credit facilities mentioned in Order 2.1 above and any other categories of lending products that may hereafter be determined by the Monetary Board, by at least 250 basis points by 31.10.2023 and further 100 basis points by 31.12.2023 in comparison to the interest rates that prevailed as at 31.07.2023.2.3 However, if the annual nominal interest rate applicable to any LKR denominated lending products as at the date of this Order or anytime thereafter is 13.5 per cent or lower, it shall not be mandatory to give effect to the reduction required under Order 2.2 above. Further, in cases where the applicable annual nominal interest rate as at the date of this Order or anytime thereafter is 13.5 per cent or less, the licensed bank shall not increase the interest rates of such lending products from the level maintained as at the date of this Order.2.4 Every licensed bank shall reduce the penal interest rates charged on all lending products, including credit facilities already granted, to a level not exceeding 200 basis points per annum, for the amount in excess of an approved limit or in arrears, during the overdue period, with immediate effect.3.1 All licensed banks shall ensure the accuracy of interest rate data submitted to CBSL and maintain internal documented records electronically or manually, in relation to the reductions in interest rates in respect of each loan product to which these Orders apply.2


25 August 2023
4. ImplementationMONETARY BOARDCENTRAL BANK OF SRI LANKAMONETARY LAW ACT ORDER No. 01 of 20233.2 Compliance with the requirements of these Orders will also be monitored through the Average Weighted Lending Rate (AWLR) of each licensed commercial bank.4.1 These Orders shall be effective from the date of the Order.Dr. P Nandalal WeerasinglieChairman of the Monetary Board and Governor of the Central Bank of Sri Lanka
3


MONETARY BOARD CENTRAL BANK OF SRI LANKAApril 2023 CIRCULAR No. 01 of 2023CESSATION OF ICRA LANKA LTD AS AN ACCEPTABLE CREDIT RATING AGENCYConsequent to the cessation of the business operations of ICRA Lanka Ltd in Sri Lanka with effect from 31.01.2023 as informed by the Securities and Exchange Commission of Sri Lanka, it has been decided to discontinue the recognition of ICRA Lanka Ltd as an eligible/acceptable credit rating agency for regulatory purposes pertaining to licenced commercial banks and licensed specialised banks (hereinafter referred to as “licensed banks”).Accordingly, licensed banks are requested to take appropriate measures in this regard.Dr. P Nandalal Weerasinghe //Chairman of the Monetary Board and Governor of the Central Bank of Sri Lanka


CENTRAL BANK OF SRI LANKA
13 June 2024 BANKING ACT DETERMINATION No. 01 of 2024
STATUTORY LIQUIDITY RATIOS OF LICENSED BANKS
Issued under Sections 21(1) and 76(H) of the Banking Act, No. 30 of 1988, amended by the
Banking (Amendment) Act, No. 24 of 2024
In terms of Sections 21(1) and 76H of the Banking Act, No. 30 of 1988, as amended, thc
Central Bank of Sri Lanka has determined that every licensed commercial bank and licensed
specialised bank (hercinafter referred to as licensed banks) shall maintain Liquidity Coverage
Ratio (LCR) and Net Stable 'unding Ratio (NSFR) as the statutory liquidity ratios of such
banks, at all times, in accordance with “Basel I1I: International Framework for Liquidity Risk
Measurement, Standards and Monitoring”, “Basel IlI: The Liquidity Coverage Ratio and
Liquidity Risk Monitoring Tools” and “Basel III: The Net Stable Funding Ratio”, issued
hitherto by the Basel Committee on Banking Supervision.
1. Empowerment 1.1 In terms of Section 21(1) of the Banking Act, No.30 of
under the Banking 1988, as amended, every licensed commercial bank (LCB)
Act shall, at all times maintain liquid assets that are required to
meet its liabilities as may, from time to time, be determined
by the Central Bank and comply with the requirements on
liquidity having regard to the developments in the
regulatory requirements, and the Central Bank shall, as far
as practicable, adopt international standards applicable on
liquidity requirements of such LCB.
i3 In terms of Section 76(H) of the Banking Act No.30 of
1988, as amended, the provisions of Section 21 of the
Banking Act shall mutatis mutandis apply to a licensed
specialised bank (L.SB) as they apply to an LCB.


13 June 2024
2. Minimum LCR and
NSFR
Requirements
3. Regulatory
Reporting \ e }
\)~"r: 2
CENTRAL BANK OF SRI LANKA
BANKING ACT DETERMINATION No. 01 of 2024
2.1 Every licensed bank shall maintain, LCR of 100% as
22
3.1
32
33 prescribed in Schedule I hereto, in respect of Rupee
Liquidity Minimum Requirement for local currency
operations and All Currency Liquidity Minimum
Requirement for the overall operations, at all times.
Every licensed bank shall maintain NSFR of 100%, as
prescribed in Schedule II hereto, at all times.
Every licensed bank shall submit the following returns on a
monthly basis, on or before the fifteenth day of the
following month as per the formats and guidelines given in
Appendices I to III to the Schedule I hereto, via the Web-
based Off-site Surveillance System.
(i) Return for LCR LKR (BSD-MF-19-R1 to BSD-MF-
19-R4)
(ii) Return for LCR All Currency (BSD-MF-19-A1 to
BSD-MF-19-A4)
(iii) Return on LCR by significant foreign currency
Every licensed bank shall submit a return on NSFR on a
quarterly basis, within one month after the end of each
quarter, as per the formats and guidelines given in
Appendices 1 and 1l to the Schedule II hereto, via Web-
based Off-site Surveillance System (BSD-QF-32-1A, BSD-
QF-32-2A, BSD-QF-32-3A and BSD-QF-32-3B).
Every Licensed bank shall submit the return on early
warning indicators on a daily basis, via the Web-based Off-
site Surveillance System (BSD-DF-01-EW).


13 June 2024
4. Liquidity
Monitoring Tools S - 2
CENTRAL BANK OF SRI LANKA
BANKING ACT DETERMINATION No. 01 of 2024
4.1 Every licensed bank shall monitor its liquidity position
using the monitoring tools stated below and document
processes for application of such tools. In addition, every
licensed bank shall monitor the liquidity position relative to
its size and the nature of the business operations.
@
(i)
(iif)
(iv) Contractual Maturity Mismatch: Develop a metric
to identify contractual maturity mismatch profile, i.e.,
the gaps between the contractual inflows and
outflows of liquidity for defined time bands to assess
the potential liquidity needs.
Concentration of Funding: Develop a metric to
mitigate the funding concentration risk that may arise
from significant counterparties,
products/instruments, currencies, etc.
LCR by Significant Foreign Currency: Develop a
metric to monitor LCR in each significant currency
on an ongoing basis in order to capture potential
currency mismatches. For this purpose, significant
currencies shall be determined internally based on the
bank’s volume of transactions in such currencies and
its ability to raise funds in foreign currency markets.
Available Unencumbered Assets: Develop a metric
to provide data on the volume and key characteristics
of all available unencumbered assets which have the
potential to be used as collateral for raising additional
funding from the secondary market and/or central
banks.


TT
o
CENTRAL BANK OF SRI LANKA
13 June 2024 BANKING ACT DETERMINATION No. 01 of 2024
5. Discontinuation of 5.1
requirements on
Statutory Liquid
Assets Ratio
6. Revocation 6.1
6.2 All regulatory requirements relating to Statutory Liquid
Assets Ratio by licensed banks are hereby discontinued.
The following Directions are hereby revoked with effect
from the appointed date of the Banking (Amendment) Act,
No.24 of 2024.
(@
(i)
(iif) Banking Act Directions No. 01 of 2015 on Liquidity
Coverage Ratio under Basel III Liquidity Standards
for Licensed Commercial Banks and Licensed
Specialised Banks, dated 31.03.2015.
Banking Act Directions No. 08 of 2018 on Net
Stable Funding Ratio under Basel III Liquidity
Standards for Licensed Commercial Banks and
Licensed Specialised Banks, dated 21.11.2018.
Banking Act Directions No. 09 of 2018 on
Amendments to the Banking Act Directions on
Liquidity Coverage Ratio Under Basel III Liquidity
Standards for Licensed Commercial Banks and
Licensed Specialised Banks, dated 21.11.2018.
The discontinuation/revocation effected by 5.1 and 6.1
above shall not affect:
(i)
(i) Any offence committed or any penalty or liability
incurred under those Directions prior to the
revocation; and
Any action or proceeding pending or incomplete on
the date of revocation, and such action, or
proceeding may be carried on and completed as if


}
\n.. /‘
CENTRAL BANK OF SRI LANKA
13 June 2024 BANKING ACT DETERMINATION No. 01 of 2024
those instructions, Directions, Determinations,
Circulars and Orders continue to be in force.
7. Effective Date 7.1 These Determinations shall be effective from the appointed
date of the Banking (Amendment) Act, No 24 of 2024.
Chairman of the Governing Board and
Governor of the Central Bank of Sri Lanka


6

SCHEDULE I
BASEL  III LIQUIDITY  STANDARDS
ON LIQUIDITY  COVERAGE  RATIO


8  1. INTRODUCTION
1.1 The global financial crisis that began in 2007 revealed that certain banks even  with
adequate capital levels experienced severe stress due to lack of prudent liquidity  risk
management practices and due to sudden evaporation of liquidity from the market
resulting  from withdrawals of credit lines  by market participants.
1.2 The Basel Committee on Banking Supervision (BCBS) issued the Basel III rules on
liquidity risk measurement, standards and monitoring on 16.12.2010. Two minimum
standards, viz., the Liquidity Coverage Ratio and the Net Stable Funding Ratio, were
prescribed by BCBS. In January 2013, the Basel Committee's oversight body, the  Group
of Central Bank Governors and Heads of Supervision (GHOS) endorsed the  Basel  III
Liquidity  Rule  on LCR  as the global  minimum  standard for  liquidity  risk.
1.3 LCR is expected to improve the banking sector’s ability to absorb shocks arising from
financial and economic stress, thus, reducing the risk of spillover from the financial
sector to the real economy. LCR is one of the Basel Committee's key reforms to
strengthen global liquidity regulations with the goal of promoting a more resilient
banking  sector.
1.4 Basel III Liquidity Standards mainly focus on internationally active banks. However,
regulators have adopted these standards for other banks too with a view to further
strengthen ing liquidity  risk management , be in line with international  best practices  and
facilitat ing entity  rating,  Sovereign  rating  and international  fund-raising  activities.
2. THE  REGULATORY  FRAMEWORK
2.1 Objective  of LCR:
LCR  intends  to:
a) promote short -term resilience of the liquidity risk profile of banks ensuring that
banks have adequate stock of unencumbered high -quality liquid assets  that can  be
converted easily and immediately into cash in secondary market to meet their


converted easily and immediately into cash in secondary market to meet their
liquidity needs for a period of 30 calendar days under a liquidity stress scenario;
and
b) improve the  ability of the  banking sector to absorb shocks arising from financial
and economic stress, whatever the source, thus reducing the risk of spillover from
the financial  sector to the  real economy.


9  2.2 Scope  of application
LCR framework shall be applicable to banks on a standalone (“Solo”) basis  including
overseas  operations  through  branches  and for the banks   incorporated  in Sri Lanka, the
scope will be extended to the consolidated (“Group”)  level.

2.3 LCR  computation
The computation  of LCR  shall be  based on  the following  formula.

2.4    Definition  of High -Quality  Liquid  Assets  (HQLA)
2.4.1.  HQLA  are assets  that satisfy  the following  conditions:
a) can be easily  and immediately  converted  into cash  at little  or no  loss of  value,
b) can be readily  sold or used as collateral  to obtain  funds  in a range  of stress
scenarios,  and
c) are unencumbered,  i.e., without  legal, regulatory  or operational  impediments.

2.4.2.  Characteristics  of HQLA
In determining  HQLA,  banks  shall  consider  the fundamental  characteristics  and market
related characteristics  of such assets.
a) Fundamental  characteristics
i) Low credit and market risk : Assets that are less risky tend to have high
liquidity.  High  credit  standing  of the issuer  and a low degree  of subordination
increases an asset’s liquidity. Low duration, low volatility,  low inflation risk
and denomination in a convertible currency with low  foreign  exchange  risk
enhance an asset’s  liquidity.
ii) Ease and certainty of valuation : An asset’s liquidity increases if market
participants are more likely to agree on its valuation. The pricing  formula      of
a HQLA must be easy to calculate and should not depend on strong
assumptions. The inputs into the pricing formula must also be publicly
available. In practice, this should rule out the inclusion of most structured  or
exotic  products.  LCR  =  Stock of  high-quality  liquid assets  *100
Total  net cash  outflows over the  next 30  calendar days


10  iii) Low correlation with risky assets : The stock of HQLA should not be
subject to highly correlated risk. For example, assets issued by financial
institutions are more likely to be illiquid in times of liquidity stress in the
banking  sector.
iv) Listed on a developed and recognised exchange market : Being listed
increases  an asset’s transparency.
b) Market  related  characteristics
i) Active and sizable market : The asset should have an active  outright sale or
repurchase agreement (repo) market at all times, i.e., a large number of
market participants and a high trading volume. There should be historical
evidence of market breadth such as price impact per unit of liquidity and
market depth such as units of the asset that can be traded for a given price
impact.
ii) Presence of committed market makers : Quotes should be available for
buying  and/or selling  a high-quality  liquid asset.
iii) Low market concentration : A diverse group of buyers and sellers in an
asset’s  market increases the  reliability  of its liquidity.
iv) Capital  flight  towards  quality  assets : Historically,  the market  should  have
shown tendencies  to move into these types of assets in a systemic  crisis.
2.5 Categories  of HQLA
HQLA  are categorised  into two broad  categories.  Assets  to be included  in each            category
are those  that the bank  is holding on  the first  day of the stress  period,  irrespective  of
their residual maturity.
a) Level 1 assets:  Include cash in hand, qualifying Central Bank  reserves and
qualifying marketable securities that attract a 0% risk weight under the Basel I II
Capital  Adequacy  Framework.
b) Level 2 assets: Include Level 2A assets and Level 2B assets up to a maximum of
40% of total HQLA.
i) Level 2A assets: Include qualifying investments in gilt  unit trusts, subject to
a 15% haircut.


11

ii) Level 2B assets: Include qualifying non - financial  common equity shares,
subject to  a 50% haircut.  Level 2B assets  are limited to a  maximum of 15%
of total HQLA.
Assets to be included in each category with the applicable factors and limitations are
indicated  below.
Item  Factor
Stock  of HQLA
A. Level  1 assets
• Cash  in hand
100%  • Qualifying  Central  Bank  balances  and reserves  in excess  of the
Statutory  Reserves Ratio (SRR)
• Qualifying  marketable  securities  with a 0% risk weight
B. Level  2 assets  (maximum  of 40% of HQLA)
Level  2A assets
• Qualifying  marketable  securities  with a 20% risk weight
         85% • Qualifying  investments  in gilt unit  trust backed by government  of
Sri Lanka  securities
Level  2B assets  (maximum  of 15% of HQLA)
• Qualifying non -financial common equity shares           50%
Total  value  of stock  of HQLA

2.6 Total  net cash  outflows
2.6.1 Total net cash outflows are defined as the total expected cash outflows minus total
expected  cash inflows  for the subsequent  30 calendar  days.  Total  expected  cash outflows
are calculated by multiplying the outstanding balances of various categories  or types of
liabilities and off -balance sheet commitments by the rates at which they are   expected to
run off or be drawn down. Total expected cash inflows are calculated by  multiplying the
outstanding balances of various  categories of contractual  receivables  by the rates at
which they are expected to flow in up to an aggregate cap of 75% of the  total expected
cash outflows.
2.6.2 Banks shall not double count items, i.e., if an asset is included as part of the “stock of
HQLA”  (i.e. numerator), the associated  cash inflows cannot  be counted as  “cash
inflows”  (i.e. part of the  denominator).

2.7 Appendices
The Reporting formats for Rupee Liquidity Requirement (BSD -MF-19-RR) and All


12  Currency  Liquidity  Requirement  (BSD -MF-19-AR) along  with the Guidelines  for
calculation  of LCR  and Mapping of  notations  of the Credit  Rating Agencies  for
classification  of assets for  LCR  are given below .
2.7.1 Appendix  I - Reporting  formats  for both Rupee  Liquidity  Requirement  and All Currency
Liquidity  Requirement.
2.7.2 Appendix  II - Guidelines  for calculation  of Liquidity  Coverage  ratio.
2.7.3 Appendix  III - Mapping of notations of the Credit Rating Agencies  for classification  of
assets for LCR.


13
Appendix  I of Schedule I

Reporting Formats for Rupee Liquidity Requirement ( BSD -MF-19-R1 to BSD -MF-19-R4)
Reporting Formats for All -Currency Liquidity Requirement ( BSD -MF-19-A1 to BSD -MF-19-A4)
Monthly  Financial  Return (LKR'000)
Name  of the Bank:
As at:

Part  I - Calculation  of LCR
Web -based
Return  Code  Item  Amount
19.1.1.0.0.0  Total  Stock of  HQLA =  19.2.0.0.0.0  of Part II
19.1.2.0.0.0  Total  Cash Outflows  = 19.3.0.0.0.0 of  Part III
19.1.3.0.0.0  Total  Cash  Inflows  = 19.4.0.0.0.0  of Part IV
19.1.4.0.0.0  Net Cash Outflows  = 19.1.2.0.0.0 - MIN(19.1.3.0.0.0, 75%*19.1.2.0.0.0)
19.1.5.0.0.0  Liquidity  Coverage  Ratio,%  = (19.1.1.0.0.0/19.1.4.0.0.0)*100

Part  II - Calculation  of High -Quality  Liquid  Assets  (HQLA)
Web -based
Return  Code  Asset  Amount  Factor  Weighted
Amount
19.2.0.0.0.0  Total  stock  of HQLA
19.2.1.0.0.0  Total  Adjusted  Level 1  Assets
19.2.1.1.0.0  Level 1  Assets
19.2.1.1.1.0  Cash in  hand   100%
19.2.1.1.2.0  Qualifying  central  bank  balances  and reserves  in excess  of
Statutory  Reserve  Ratio   100%
19.2.1.1.3.0  Qualifying  marketable  securities  with a 0% risk weight
19.2.1.1.3.1  Issued  by sovereigns   100%
19.2.1.1.3.2  Guaranteed  by sovereigns   100%
19.2.1.1.3.3  Issued  or guaranteed  by central banks   100%
19.2.1.1.3.4  Issued or guaranteed by BIS, IMF, ECB and European
Community  or MDBs   100%
19.2.1.2.0.0  Adjustments
19.2.1.2.1.0  Add: Market value of level 1 securities pledged for secured
funding   100%
19.2.1.2.2.0  Add:  Amounts  extended  through  secured  lending   100%
19.2.1.2.3.0  Less: Market value of level 1 securities received for
secured  lending   100%
19.2.1.2.4.0  Less:  Amounts raised  through  secured  funding   100%
19.2.2.0.0.0  Total  Adjusted  Level 2A  Assets
19.2.2.1.0.0  Level 2A  Assets


19.2.2.0.0.0  Total  Adjusted  Level 2A  Assets
19.2.2.1.0.0  Level 2A  Assets
19.2.2.1.1.0  Qualifying  marketable  securities  with a 20% risk weight:
19.2.2.1.1.1  Issued  or guaranteed  by sovereigns   85%
19.2.2.1.1.2  Issued  or guaranteed  by central banks   85%
19.2.2.1.1.3  Issued  or guaranteed  by Public  Sector  Enterprises   85%
19.2.2.1.1.4  Issued  or guaranteed  by MDBs   85%


14

19.2.2.1. 2.0 Qualifying  investments  in gilt unit trust backed  by
Government  of Sri Lanka  (GOSL)  securities   85%
19.2.2.2.0.0  Adjustments
19.2.2.2.1.0  Add: Market value of level 2A securities pledged for
secured  funding   85%
19.2.2.2.2.0  Add:  Amounts  extended  through  secured  lending   85%
19.2.2.2.3.0  Less:  Market value  of level  2A securities  received  for
secured  lending   85%
19.2.2.2.4.0  Less:  Amounts raised  through  secured  funding   85%
19.2.3.0.0.0  Total  Adjusted  Level 2B  Assets
19.2.3.1.0.0  Level  2B Assets
19.2.3.1. 1.0 Qualifying  non-financial  common  equity  shares   50%
19.2.3.2.0.0  Adjustments
19.2.3.2.1.0  Add: Market value of level 2B securities pledged for
secured  funding   50%
19.2.3.2.2.0  Add:  Amounts  extended  through  secured  lending   50%
19.2.3.2.3.0  Less: Market value of level 2B securities received for
secured  lending   50%
19.2.3.2.4.0  Less:  Amounts raised  through  secured  funding   50%

Part  III - Calculation  of Total Cash  Outflows
Web -based
Return  Code  Item  Amount  Factor  Weighted
Amount
19.3.0.0.0.0  Total  cash  outflows
19.3.1.0.0.0  Deposits
19.3.1.1.0.0  Demand, savings and term deposits (less than 30 days
maturity)
19.3.1.1.1.0  Retail  customers   10%
19.3.1.1.2.0  Small and medium enterprises   10%
19.3.1.2.0.0  Term  deposits  with residual  maturity  greater  than 30 days  0%
19.3.2.0.0.0  Unsecured  wholesale  funding
19.3.2.1.0.0  Operational  deposits  generated  by clearing,  custody  and
cash management  activities   25%
19.3.2.2.0.0  Cooperative  banks  in an institutional  network  (qualifying
deposits  with the  centralised institution)   25%
19.3.2.3.0.0  Non-financial  corporates,  sovereigns,  central  banks,
MDBs  and Public  Sector  Enterprises   40%
19.3.2.4.0.0  Other  legal  entity  customers   100%
19.3.3.0.0.0  Secured  funding transactions


19.3.3.0.0.0  Secured  funding transactions
19.3.3.1.0.0  Backed  by Level  1 assets   0%
19.3.3.2.0.0  Backed  by Level  2A assets   15%
19.3.3.3.0.0  Backed  by Level  2B assets   50%
19.3.3.4.0.0  Backed  by all other  assets   100%
19.3.4.0.0.0  Undrawn  portion  of committed  (irrevocable)  facilities
and other contingent  funding  obligations
19.3.4.1.0.0  Committed  (irrevocable)  credit  & liquidity  facilities


15

19.3.4.1.1.0  Undrawn committed credit & liquidity facilities to retail
and small and medium enterprises   5%
19.3.4.1.2.0  Undrawn  committed  credit  facilities  to non-financial
corporates,  sovereigns,  CBs, PSEs  and MDBs   10%
19.3.4.1.3.0  Undrawn  committed  liquidity  facilities  to non-financial
corporates,  sovereigns,  CBs, PSEs  and MDBs   30%
19.3.4.1.4.0  Undrawn  committed  liquidity  facilities  to banks  subject  to
prudential  supervision   40%
19.3.4.1.5.0  Undrawn  committed  credit  facilities  to other  financial
institutions   40%
19.3.4.1.6.0  Undrawn  committed  liquidity  facilities  to other  financial
institutions   100%
19.3.4.1.7.0  Undrawn  committed  credit  & liquidity  facilities  to other
legal entities   100%
19.3.4.2.0.0  Other  contingent  funding  obligations
19.3.4.2.1.0  Unconditionally  revocable  "uncommitted"  credit  and
liquidity  facilities   0%
19.3.4.2.2.0  Trade  Finance  related  obligations  (including  guarantees
and letters  of credit)   5%
19.3.4.2.3.0  Guarantees  unrelated  to trade  finance  obligations   0%
19.3.4.2.4.0  Other  contractual  cash outflows   100%
19.3.5.0.0.0  Additional  requirements
19.3.5.1.0.0  Net derivative  cash outflows   100%
19.3.5.2.0.0  Any other contractual  cash outflows   100%

Part  IV - Calculation  of Total  Cash  Inflows
Web -based
Return  Code  Item  Amount  Factor  Weighted
Amount
19.4.0.0.0.0  Total  cash  inflows
19.4.1.0.0.0  Maturing secured lending transactions backed by the
following  collateral
19.4.1.1.0.0  Backed  by Level  1 assets   0%
19.4.1.2.0.0  Backed  by Level  2A assets   15%
19.4.1.3.0.0  Backed  by Level  2B assets   50%
19.4.1.4.0.0  Margin  lending  backed by  non-Level 1 or  non-Level 2
collateral   50%
19.4.1.5.0.0  Backed  by all other  assets   100%
19.4.2.0.0.0  Committed  facilities
19.4.2.1.0.0  Credit  facilities   0%


19.4.2.0.0.0  Committed  facilities
19.4.2.1.0.0  Credit  facilities   0%
19.4.2.2.0.0  Liquidity  facilities   0%
19.4.2.3.0.0  Other  contingent  funding  facilities   0%
19.4.3.0.0.0  Other inflows by counterparty which are maturing within
30 days
19.4.3.1.0.0  Retail and small and medium enterprises   50%
19.4.3.2.0.0  Non-financial  wholesale  counterparties   50%
19.4.3.3.0.0  Central  Banks,  Banks  and Financial Institutions   100%
19.4.4.0.0.0  Operational  deposits   0%
19.4.5.0.0.0  Other  cash  inflows
19.4.5.1.0.0  Net derivative  cash inflows   100%
19.4.5.2.0.0  Other  contractual  cash inflows   50%


Appendix II of Schedule I
16  Guidelines  for Calculation  of Liquidity  Coverage  Ratio
Web -based
Return  Code  Item
19.2.0.0.0.0  Total  stock  of HQLA
19.2.1.0.0.0  Total  Adjusted  Level 1  Assets
19.2.1.1.0.0  Level 1  Assets
19.2.1.1.1.0  Cash in hand
All cash  (coins  and bank  notes)  held by the bank  that is  immediately  available  to meet  obligations.
19.2.1.1.2.0  Qualifying  central  bank  balances  and reserves  in excess  of Statutory  Reserve  Ratio  (SRR)
Central  Bank  balances  and reserves  in excess  of SRR  maintained  which  can be drawn  down  in times  of
stress.  The balance  held at CBSL  which  represents  part of the capital  held in foreign  currency
should  not be included,  since it  is part  of capital.
19.2.1.1.3.0  Qualifying  marketable  securities  with  a 0% risk weight  and shall  satisfy  all of  the following:
(i) Traded  in large,  deep  and active  repo or cash  markets  characterized  by a low level of  concentration;
(ii) Have  a proven  record  as a reliable  source  of liquidity  in the markets  (repo  or sale) even  during  stressed
market conditions;
(iii) Not an obligation  of a financial institution  or any of its affiliated  entities;
(iv) At the mark  to market  value;
(v) Excluding  securities  pledged  for secured  funding/ repo  irrespective  of the maturity;
(vi) Including  securities  received  for secured  lending/  reverse  repo maturing  over 30 days.
19.2.1.1.3.1  Issued  by sovereigns
Government  of Sri Lanka  - rupee  claims.  Foreign  Sovereigns  - where  the sovereign  attracts  an
External  Credit Rating  between AAA  to AA -.
19.2.1.1.3.2  Guaranteed  by sovereigns
Government  of Sri Lanka  - rupee  claims.  Foreign  Sovereigns  - where  the sovereign  attracts  an
External  Credit Rating  between AAA  to AA -.
19.2.1.1.3.3  Issued  or guaranteed by  central  banks  (CBs)


19.2.1.1.3.3  Issued  or guaranteed by  central  banks  (CBs)
Central  Bank  of Sri Lanka  - all claims.  Foreign  Central  Banks  - where  the sovereign  attracts  an
External  Credit  Rating  between AAA  to AA -.
19.2.1.1.3.4  Issued  or guaranteed by  BIS, IMF, ECB and  European  Community  or MDBs
 Issued or guaranteed by Bank for International Settlements (BIS), the International Monetary Fund
(IMF), the European Central Bank (ECB), European Community (EC) and the following eligible
Multilateral Development  Banks (MDBs)
* The World  Bank  Group  comprising  of the International  Bank  for Reconstruction  and Development
(IBRD)  and the International  Finance  Corporation (IFC)
* The Asian  Development Bank  (ADB)
* The African  Development  Bank  (AFDB)
* The European  Bank  for Reconstruction  and Development  (EBRD)
* The Inter -American  Development  Bank  (IADB)
* The European  Investment Bank  (EIB)
* The European  Investment Fund  (EIF)
* The Nordic  Investment  Bank  (NIB)
* The Caribbean Development Bank  (CDB)
* The Islamic Development  Bank  (IDB)
* The Council  of Europe Development Bank  (CEDB)
* The International  Finance  Facility  for Immunization  (IFFIm)


17  19.2.1.2.0.0  Adjustments
19.2.1.2.1.0  Add:  Market value  of level  1 securities  pledged  for secured  funding
Market  value  of the Level 1  asset collateral extended  on secured  funding or  repo transactions that
mature within  30 days.
19.2.1.2.2.0  Add: Amounts extended  through secured  lending
Amounts extended through secured lending or reverse repo transactions maturing within 30 days, in
which the bank has extended cash and obtained collateral in the form of Level 1 (where collateral
obtained  not re-used).
19.2.1.2.3.0  Less:  Market value  of level 1  securities  received  for secured  lending
Market  value  of the Level  1 asset  collateral  (where  collateral  obtained  not re-used)  received  on secured
lending  or reverse  repo transactions  maturing  within  30 days,  in which  the bank  has extended  cash and
obtained  collateral  in the form  of Level  1.
19.2.1.2.4.0  Less: Amounts  raised  through secured  funding
Amounts  raised  through  secured  funding  or repo  transactions  conducted  that mature  within  30 days and
are backed by  Level  1 assets.
19.2.2.0.0.0  Total  Adjusted  Level 2A  Assets
19.2.2.1.0.0  Level 2A  Assets
19.2.2.1.1.0  Qualifying  marketable  securities  with  a 20%  risk weight  and shall  satisfy  all of the following
conditions:
(i) Traded  in large, deep  and active  repo or cash  markets characterised by  a low  level  of concentration;
(ii) Have a proven record as a reliable source of liquidity in the markets (repo or sale) even during stressed
market conditions (i.e. A maximum decline of price or increase in haircut not exceeding 10% over a  30-
day period  of significant  liquidity  stress );
(iii) Not an obligation  of a financial institution  or any of its affiliated  entities;
(iv) At the mark  to market  value;
(v) Excluding  securities  pledged  for secured  funding/  repo irrespective  of the maturity;


(v) Excluding  securities  pledged  for secured  funding/  repo irrespective  of the maturity;
(vi) Including  securities  received  for secured  lending/  reverse  repo maturing  over 30 days.
19.2.2.1.1.1  Issued  or guaranteed by  sovereigns
Government of Sri Lanka - foreign claims. Foreign  Sovereigns - where  the sovereign  attracts  an
External  Credit  Rating  between  A+ to A-.
19.2.2.1.1.2  Issued  or guaranteed by  CBs
Foreign  Central Banks  - where  the sovereign attracts  an External Credit Rating  between  A+ to  A-.
19.2.2.1.1.3  Issued  or guaranteed by  Public  Sector  Enterprises  (PSEs)
Domestic  and foreign  PSEs  - where  PSE attracts  an External  Credit Rating  between  AAA  to AA-.
19.2.2.1.1.4  Issued  or guaranteed by  MDBs
MDBs  other  than MDBs  listed  above  in 19.2.1.1.3.4  where  MDB  attracts  an External  Credit  Rating
between  AAA  to AA -.
19.2.2.1. 2.0 Qualifying  investments  in Gilt Unit  Trust  (GUT)  backed  by GOSL  securities,  subject  to:
(i) GUTs  should  be open ended  mutual funds;
(ii) Underlying  investment  portfolio  of GUTs  should  always  be Sri Lanka  Government  Securities;
19.2.2.2.0.0  Adjustments
19.2.2.2.1.0  Add:  Market value  of level 2A  securities  pledged  for secured  funding
Market  value  of the Level  2A asset  collateral  extended  on secured  funding  or repo transactions  that
mature within  30 days.
19.2.2.2.2.0  Add:  Amounts extended  through  secured  lending
Amounts extended through secured lending or reverse repo transactions maturing within 30 days, in
which the bank has extended cash and obtained collateral in the form of Level 2A (where collateral
obtained  not re-used).


18  19.2.2.2.3.0  Less:  Market value  of level 2A  securities  received  for secured  lending
Market  value  of the Level  2A asset  collateral  (where  collateral  obtained  not re-used)  received  on
secured  lending  or reverse  repo transactions  maturing  within  30 days,  in which  the bank  has extended
cash and obtained  collateral  in the form  of Level  2A.
19.2.2.2.4.0  Less: Amounts  raised through  secured  funding
Amounts  raised  through  secured  funding  or repo transactions  that mature  within  30 days and are
backed by  Level  2A assets .
19.2.3.0.0.0  Total  Adjusted  Level 2B  Assets
19.2.3.1.0.0  Level  2B Assets
19.2.3.1. 1.0
(i)
(ii)
(iii)
(iv)

(v)
(vi) Qualifying  non-financial  common  equity  shares  that satisfy  all of the following  conditions:
Not issued by a financial institution or any of its affiliated entities;
Traded at recognized stock exchange and centrally cleared;
Traded in large, deep and active repo or cash markets characterised by a low level of concentration;
Have a proven record as a reliable source of liquidity in the markets (repo or sale) even during stressed
market conditions (i.e., maximum decline of share price or increase in haircut not exceeding 40% over
a 30 day period of significant liquidity stress) ;
Excluding securities pledged for secured funding/ repo irrespective of the maturity;
Including securities received for secured lending/ reverse repo maturing over 30 days.
19.2.3.2.0.0  Adjustments
19.2.3.2.1.0  Add:  Market value  of level 2B  securities  pledged  for secured  funding
Market  value  of the Level  2B asset  collateral  extended  on secured  funding  or repo transactions  that
mature within  30 days.
19.2.3.2.2.0  Add:  Amounts extended  through secured  lending
Amounts  extended  through  secured  lending  or reverse  repo transactions  maturing  within  30 days,  in


which  the bank  has extended  cash and obtained  collateral  in the form  of Level  2B (where  collateral
obtained  not re-used).
19.2.3.2.3.0  Less:  Market value  of level 2B securities  received  for secured  lending
Market  value  of the Level  2B asset  collateral  (where  collateral  obtained  not re-used)  received  on
secured  lending  or reverse  repo transactions  maturing  within  30 days,  in which  the bank  has extended
cash and obtained  collateral  in the form  of Level  2B.
19.2.3.2.4.0  Less: Amounts  raised  through  secured  funding
Amount  raised  through  secured  funding or  repo transactions that  mature  within  30 days and are backed
by Level  2B assets
19.3.0.0.0.0  Total  cash outflows  (Capital and  accrued  interest  if any)
19.3.1.0.0.0  Deposits (including dormant deposits, collateralised customer deposits against lending, margin deposits
and insured deposits  under  the Sri Lanka Deposit  Insurance  Scheme)
19.3.1.1.0.0  Demand,  savings  and term  deposits  (less than  30 days  maturity)
19.3.1.1.1.0  Retail  customers
Deposits placed with a bank by a natural person.
19.3.1.1.2.0  Small and medium enterprises

Deposits placed with a bank by small and medium enterprises (SME). The total amount of deposits placed
with the bank by an SME shall not exceed Rs. 250 million.

Qualifying criteria to be classified as an SME are as follows:
(i) The annual turnover of the SME shall not exceed Rs.1 billion at the time of obtaining the
deposit/granting the facility;
(ii) The annual turnover should be based on latest available audited financial statements or certified by
a Chartered Accountant or an Approved Accountant acceptable to the Department of Inland


19  Revenue. In the case of draft financial statements, the turnover certified by a Chartered Accountant
or an Approved Accountant should be obtained within the year;
(iii) The criterion (ii) above shall be applicable if the total amount of deposits placed with the bank by
the SME or the total exposure (including off -balance sheet exposure) to the SME is greater than
or equal to Rs. 50 million. Otherwise banks may adopt their  own internal mechanism to verify the
annual turnover of the SME.
19.3.1.2.0.0  Term  deposits  with  residual maturity  greater  than  30 days

Cash outflows related to retail term deposits with a residual maturity or withdrawal notice period of
greater than 30 days will be excluded from total expected cash outflows if the depositor has no legal
right to withdraw deposits within 30 days or if early withdrawal results in a significant penalty that is
materially greater than the loss of interest.
If a bank allows a depositor to withdraw such deposit without applying the corresponding penalty, or
despite a clause that says depositor has no legal right to withdraw, the entire category should be treated
as demand deposits regardless of the remaining m aturity.
19.3.2.0.0.0  Unsecured  wholesale  funding

Wholesale deposits and other general obligations that are raised from legal entities (incorporated
companies excluding SME). Wholesale deposits also include dormant deposits, collateralised customer
deposits against lending, margin deposits and insured dep osits under the Sri Lanka Deposit Insurance
and Liquidity Support Scheme. ln case of other general obligations, they shall not be collateralised by
legal rights to specifically designated assets owned by the borrowing institution in the case of
bankruptcy,  insolvency, liquidation or resolution. Obligations related to derivative contracts are
explicitly excluded from this definition.


explicitly excluded from this definition.
19.3.2.1.0.0  Operational  deposits  generated  by clearing,  custody  and cash  management  activities
Financial and non -financial customer deposits placed with a bank, in order to facilitate their access and
ability to use payment and settlement systems or make payments. These services must be provided  under
a legally binding agreement in addition to the account mandate to institutional customers (e.g.  Vostro
Accounts  and collection  accounts).
19.3.2.2.0.0  Cooperative  banks  in an institutional  network  (qualifying  deposits  with  the centralized  institution)
Group of legally autonomous banks with a statutory framework of cooperation with common strategic
focus and brand where specific functions are performed by central institutions. (e.g., Samurdhi banks,
rural banks, sanasa saving  societies, cooperative societies).
19.3.2.3.0.0  Non-financial  Corporates,  Sovereigns,  CBs,  MDBs  and PSEs
All deposits  and other  extensions  of unsecured  funding  from  non-financial  corporate  customers,
sovereigns,  CBs,  MDBs  and PSEs not held specifically  for operational  purposes.
19.3.2.4.0.0  Other  legal  entity  customers
Deposits  and other  funding  from  other  institutions  (including  banks,  security  firms,  insurance
companies, etc.), fiduciaries, beneficiaries, conduits and special purpose vehicles, affiliated entities of
the bank  and other  entities  that are not specifically  held for operational purposes  and not included  in the
prior  categories.
19.3.3.0.0.0
19.3.3.1.0.0

19.3.3.2.0.0

     19.3.3.3.0.0

19.3.3.4.0.0  Secured  Funding  Transactions
Backed by Level  1 assets
Amounts  raised  through  secured  funding  or repo transactions  not conducted  with the bank's  domestic
central bank  and that mature within 30 days and  are backed by  Level  1 assets.
Backed  by Level 2A  assets


Backed  by Level 2A  assets
Amounts  raised  through  secured  funding  or repo transactions  not conducted  with the bank's  domestic
central bank  and that mature within 30 days and  are backed by  Level  2A assets.
Backed  by Level 2B  assets
Amounts  raised  through  secured  funding  or repo transactions  not conducted  with the bank's  domestic
central bank  and that mature within 30 days and  are backed by  Level  2B assets.
Backed  by all other  assets
Amounts  raised  through  secured  funding  or repo transactions  not conducted  with the bank's  domestic
central bank  and that mature within  30 days and  are backed  by other  assets  (non-HQLA).


20  19.3.4.0.0.0  Undrawn  portion  of committed  (irrevocable)  facilities  and other  contingent  funding  obligations
19.3.4.1.0.0
19.3.4.1.1.0

19.3.4.1.2.0
19.3.4.1.3.0
19.3.4.1.4.0
19.3.4.1.5.0
19.3.4.1.6.0
19.3.4.1.7.0  Committed  (irrevocable)  credit  & liquidity  facilities
Undrawn  committed  credit  & liquidity  facilities  to retail  and small  and medium enterprises
In the case of an SME, the maximum exposure (including off -balance sheet exposure) of the lending bank
to the SME shall not exceed Rs. 250 million.
Undrawn  committed  credit  facilities  to non-financial  corporates,  sovereigns,  CBs,  PSEs  and MDBs
Undrawn  committed  liquidity  facilities  to non-financial  corporates,  sovereigns,  CBs,  PSEs  and MDBs
Undrawn  committed  credit  & liquidity  facilities  to banks  subject  to prudential  supervision
Undrawn  committed  credit  facilities  to other  financial  institutions
Undrawn  committed  liquidity  facilities  to financial  institutions
Undrawn  committed  credit  & liquidity  facilities  to other  legal  entities
19.3.4.2.0.0  Other  contingent  funding  obligations
Other  contingent  funding  liabilities  such as guarantees,  Letter  of Credit  (LC),  recoverable  credit  and
liquidity  facility.
     19.3.4.2.1.0  Unconditionally  revocable  "uncommitted"  credit  and liquidity  facilities
Balances  of undrawn  credit  and liquidity  facilities  where  the bank  has the right  to unconditionally
revoke  the undrawn portion  of these  facilities  (e.g.,  Overdraft  and credit card undrawn  portion).
19.3.4.2.2.0  Trade  Finance  related  obligations  (including  guarantees  and letters  of credit)
Trade  finance  instruments  consist  of trade -related  (import  - export  related)  obligations  directly
underpinned  by the movement  of goods or  the provision of  services.
19.3.4.2.3.0  Guarantees  unrelated  to trade  finance  obligations


19.3.4.2.3.0  Guarantees  unrelated  to trade  finance  obligations
The outstanding  amount  of guarantees  unrelated  to trade  finance  obligations.
19.3.4.2.4.0  Other  contractual  cash  outflows
Any other  contractual  cash outflows  within  the next 30 calendar  days should  be captured  in this
standard,  such as outflows  to cover  unsecured  collateral  borrowings,  uncovered  short  positions,
dividends  or contractual  interest  payments  as to what comprises  the amounts  included  in this line.
19.3.5.0.0.0  Additional  requirements
19.3.5.1.0.0  Net derivative  cash  outflows
Banks  should  calculate,  in accordance  with their existing  valuation  methodologies,  expected  contractual
derivative cash inflows and outflows. Cash flows may be calculated on a net basis (i.e.,  inflows can
offset outflows) by counterparty. The sum of all net cash outflows should be reported here.  The sum of
all net cash inflows should be reported in net derivative cash inflows. Where derivative  payments are
collateralised by HQLA, cash outflows should be calculated net of any corresponding  cash or collateral
inflows  that would  result,  all other  things  being  equal,  from  contractual  obligations  for cash or collateral
to be provided to the bank, if the bank is legally entitled and operationally capable  to re-use the collateral
in new cash raising  transactions  once  the collateral  is received.  This is in line with  the principle  that
banks  should  not double  count liquidity  inflows  and outflows.
19.3.5.2.0.0  Any other  contractual  cash outflows
Including  any amount  required  to be installed  in the central  bank  reserves  within  30 days,  any other
contractual cash outflows.
19.4.0.0.0.0  Total  cash  inflows
19.4.1.0.0.0
19.4.1.1.0.0

19.4.1.2.0.0

19.4.1.3.0.0  Maturing  secured  lending  transactions backed  by the following  collateral
Backed by Level 1 assets


Backed by Level 1 assets
Amounts extended through secured lending or reverse repo transactions maturing within 30 days, in
which the bank has extended cash and obtained collateral in the form of Level 1 (where collateral
obtained  not re-used).
Backed  by Level 2A  Assets
Amounts extended through secured lending or reverse repo transactions maturing within 30 days, in
which the bank has extended cash and obtained collateral in the form of Level 2A (where collateral
obtained  not re-used).
Backed  by Level  2B Assets


21

19.4.1.4.0.0

19.4.1.5.0.0  Amounts extended through secured lending or reverse repo transactions maturing within 30 days, in
which the bank has extended cash and obtained collateral in the form of Level 2B  (where collateral
obtained  not re-used).

 Margin  lending  backed by  non-Level 1  or non-Level 2  collateral
 Amounts  extended  through  collateralised  loans  extended  to customers  for the purpose  of taking
 leveraged  trading  positions  (“margin  loans”)  made  against non -HQLA  collateral.

 Backed  by all other  assets
Amounts  extended  through  such transactions  (other  than those  reported  in 19.4.1.4.0.0)  in which  the
bank  has obtained collateral  in another  form  than Level  1 or Level  2 assets.
19.4.2.0.0.0

19.4.2.1.0.0
19.4.2.2.0.0
19.4.2.3.0.0  Committed  facilities
Committed credit, liquidity or other contingent funding facilities that the bank holds in other  institutions
for its own purpose.
Credit facilities
Liquidity facilities
Other contingent funding facilities
19.4.3.0.0.0
19.4.3.1.0.0

19.4.3.2.0.0
  Other inflows by counterparty which are maturing within 30 days
Retail and small and medium enterprises
All payments (including interest payments and instalments) from retail customers and small and medium
enterprises on performing facilities that is contractually due within the 30 -day horizon. In the case of an
SME, the maximum exposure (including off -balance s heet exposure) of the lending bank to the SME
shall not exceed Rs. 250 million.
Non-financial wholesale counterparties
All payments  (including  interest  payments  and installments)  from  non-financial  wholesale
counterparties  on performing  facilities that  is contractually  due within  the 30 -day horizon.
19.4.3.3.0.0  Central  Banks,  Banks and  Financial  Institutions


19.4.3.3.0.0  Central  Banks,  Banks and  Financial  Institutions
All payments  (including  interest  payments  and installments)  from  central  banks,  banks  and financial
institutions  on performing  facilities  that is contractually  due within the  30-day horizon.
19.4.4.0.0.0  Operational  deposits
Deposits held at other financial institutions for operational purposes such as clearing, custody and cash
management purposes. Also includes deposits held at centralised institution of network of co -operative
banks.  These  services  must  be provided  under  a legally  binding  agreement  to institutional  customers
(e.g.,  Nostro  Accounts,  collection  accounts,  cash items  in process of  collection).
19.4.5.0.0.0
19.4.5.1.0.0  Other  cash  inflows
Net derivative cash inflows
Banks  should  calculate,  in accordance  with their existing  valuation  methodologies,  expected  contractual
derivative cash inflows and outflows. Cash flows may be calculated on a net basis (i.e.,  inflows can
offset outflows) by counterparty. The sum of all net cash inflows should be reported here.  The sum of
all net cash outflows should be reported in net derivative cash outflows. Where derivatives  are
collateralised by HQLA, cash inflows should be calculated net of any corresponding cash or  contractual
collateral  outflows  that would  result,  all other  things  being  equal,  from  contractual  obligations for cash
or collateral to be posted by the bank, given these contractual obligations would  reduce the stock of
HQLA.  This is in line  with the  principle that  banks  should  not double count  liquidity  inflows  and
outflows.
19.4.5.2.0.0  Other  contractual  cash  inflows

Any other contractual cash  inflows  to be captured.


22
                                                                                Appendix III of Schedule I

Mapping  of Notations  of the Credit  Rating  Agencies  for classification  of assets  for
LCR

Fitch
Rating
Lanka  Lanka
Rating
Agency
Limited

Standard
and Poor’s
Moody’s
Fitch
Ratings  Rating
Scale for
LCR
AAA  (lka)  AAA  AAA  Aaa AAA  AAA
AA+  (lka)  AA+  AA+  Aa1 AA+  AA+
AA (like)  AA AA Aa2 AA AA
AA- (lka)  AA- AA- Aa3 AA- AA-
A+ (lka)  A+ A+ A1 A+ A+
A (lka)  A A A2 A A
A- (lka)  A- A- A3 A- A-
BBB+  (lka)  BBB+  BBB+  Baa1  BBB+  BBB+
BBB  (lka)  BBB  BBB  Baa2  BBB  BBB
BBB - (lka)  BBB - BBB - Baa3  BBB - BBB -
BB+  (lka)  BB+  BB+  Ba1 BB+  BB+
BB (lka)  BB BB Ba2 BB BB
BB- (lka)  BB- BB- Ba3 BB- BB-
B+ (lka) B+ B+ B1 B+ B+
B (lka)  B B B2 B B
B- (lka) &
Lower  B- & Lower  B- & Lower  B3 & Lower  B- & Lower  B- & Lower


23  [Limited Sharing]

SCHEDULE  II

BASEL III LIQUIDITY STANDARDS
ON NET STABLE FUNDING  RATIO


24  [Limited Sharing]
BASEL  III - NET  STABLE  FUNDING  RATIO

1.0 Implementation  of Net Stable  Funding  Ratio
1.1 Basel Committee on Banking Supervision (BCBS) publication in December 2010 on
liquidity,  “Basel  III: International  framework  for liquidity  risk measurement,  standards
and monitoring”  introduced  two minimum  standards  namely  Liquidity  Coverage  Ratio
(LCR) and Net Stable Funding Ratio (NSFR).
1.2 The objective  of NSFR  is to reduce  funding  risk over a longer  time horizon  by requiring
LBs to fund their activities with sufficiently stable sources of funding.

2.0 Net Stable Funding  Ratio
2.1 NSFR is defined as the amount of available stable funding relative to the amount of
required stable funding. The amount of available and required stable funding are
calibrated  to reflect  the presumed  degree  of stability  of liabilities  and liquidity  of assets.
The computation of NSFR shall be based on the following formula.

2.2 Available  Stable Funding
Available Stable Funding (ASF) is defined as the portion of capital and liabilities
expected to be reliable over the time horizon of one year. ASF factors such as 100%,
90%, 50% and 0% are assigned according to presumed degree of stability of funding.
2.3 Required  Stable  Funding
Required Stable Funding (RSF) is a function of liquidity characteristics and residual
maturities of various assets held and those of its off -balance sheet (OBS) exposures.
RSF factors such as 0%, 5%, 10%, 15%, 50%, 65%, 85%, and 100% are assigned to
different asset categories accordingly.  NSFR  = available  amount  of stable  funding  *100
required amount of stable funding


25  [Limited Sharing]
2.4 Off-balance  Sheet  Exposures  (OBS)
Many potential OBS exposures do not require immediate funding but can lead to
significant liquidity drain over a longer time horizon. NSFR assigns RSF factors to
various  OBS  exposures  in order  to ensure  that banks  hold stable  funding  for the portion
of OBS  exposures  that may be expected  to require  funding  within  any one-year horizon.
2.5 Definitions on various components including High Quality Liquid Assets of Level 1,
Level 2A and Level 2B assets of NSFR mirror those outlined in  Schedule I of this
Banking Act Determination  on Liquidity Coverage Ratio, unless otherwise  specified.
2.6 Unencumbered assets under NSFR have the meaning of free of legal, regulatory,
contractual or other restrictions on the ability of the bank to liquidate, sell, transfer or
assign the asset.
2.7 Encumbered  Assets
(a) Assets on the balance sheet that are encumbered for one year or more receive a
100% RSF factor.
(b) Assets  encumbered  for a period  of between  six months  and less than one year that
would, if unencumbered, receive an RSF factor lower than or equal to 50% receive
a 50% RSF factor.
(c) Assets  encumbered  for a period  of between  six months  and less than one year that
would,  if unencumbered,  receive  an RSF factor  higher  than 50% retain  that higher
RSF factor.
(d) Where assets have less than six months remaining in the encumbrance period,
those assets may receive the same RSF factor as an equivalent asset that is
unencumbered.

3.0 Reporting  Formats
3.1 The reporting  formats  and instruction  guidelines  for computation  of Net Stable  Funding
Ratio are given as follows:
Appendix I: Reporting Formats for Net Stable Funding Ratio
Appendix  II: Guidelines  for computation  of Net Stable  Funding  Ratio


26  [Limited Sharing]
        Appendix  I of Schedule II
REPORTING  FORMATS  FOR  THE  NET  STABLE  FUNDING  RATIO
Part  I: Computation of NSFR
Web -based
Return  Code  Item  Amount
Rs. ‘000
32.1.1.0.0.0  Total  Available  Stable  Funding
32.1.2.0.0.0  Required  Stable  Funding – On Balance  Sheet  Assets
32.1.3.0.0.0  Required  Stable  Funding – Off -balance  Sheet  Items
32.1.4.0.0.0  Total  Required  Stable  Funding
32.1.5.0.0.0  NSFR


27  [Limited Sharing]
Part  II: Total Available  Stable Funding
Web -based
Return  Code  Item  Unweighted
Amount  ASF
Factor  Weighted
Amount
32.2.0.0.0.0  Total  Available Stable  Funding
32.2.1.0.0.0  Liabilities  and capital  assigned  a 100%
ASF factor
32.2.1.1.0.0  Total regulatory capital before capital
deductions  (excluding  Tier 2 instruments
with residual maturity of less than one
year)   100%
32.2.1.2.0.0  Any other capital instrument with
effective  residual  maturity  of one year or
more   100%
32.2.1.3.0.0  Secured  and unsecured  borrowings  and
liabilities with effective residual
maturities of one year or more
32.2.1.3.1.0  Net deferred  tax liabilities   100%
32.2.1.3.2.0  Minority  interest   100%
32.2.1.3.3.0  Other  liabilities   100%
32.2.2.0.0.0  Liabilities  assigned  a 90%  ASF  factor
32.2.2.1.0.0  Non-maturity  deposits  and term deposits
with residual maturity of less than one
year provided by retail customers and
Small and Medium Enterprises (SME)   90%
32.2.3.0.0.0  Liabilities  assigned  a 50%  ASF  factor
32.2.3.1.0.0  Funding with residual maturity of less
than one year provided  by non-financial
corporate customers   50%
32.2.3.2.0.0  Operational  deposits   50%
32.2.3.3.0.0  Funding with residual maturity of less
than one year from sovereigns, Public
Sector  Entities  (PSEs),  and Multilateral
Development Banks (MDBs)   50%
32.2.3.4.0.0  Other funding with residual maturity
between  six months  and less than one year
not included in the above categories,
including funding provided by central
banks and financial institutions
32.2.3.4.1.0  Net deferred  tax liabilities   50%
32.2.3.4.2.0  Minority  interest   50%
32.2.3.4.3.0  Other  liabilities   50%


28  [Limited Sharing]
32.2.4.0.0.0  Liabilities  assigned  a 0% ASF  factor
32.2.4.1.0.0  All other liabilities and equity not included
in the above categories including other
funding with residual maturity of less than
six months from central banks and financial
institutions   0%
32.2.4.2.0.0  Other  liabilities  without  a stated maturity
32.2.4.2.1.0  Net deferred  tax liabilities   0%
32.2.4.2.2.0  Minority  interest   0%
32.2.4.2.3.0  Other  liabilities   0%
32.2.4.3.0.0  NSFR derivative liabilities net of NSFR
derivative assets (if NSFR derivative
liabilities are greater than NSFR derivative
assets)   0%
32.2.4.4.0.0  “Trade date” payables arising from
purchases  of financial  instruments,  foreign
currencies and commodities   0%


29  [Limited Sharing]
Part  III (a): Required  Stable  Funding  – On Balance  Sheet  Assets
Web -based
Return
Code  Item  Unweighted
Amount  RSF
Factor  Weighted
Amount
32.3.0.0.0.0  Required  Stable  Funding  – On Balance
Sheet Assets
32.3.1.0.0.0  Assets  assigned  a 0% RSF  factor
32.3.1.1.0.0  Cash  in hand  0%
32.3.1.2.0.0  Central  bank  reserves  (Statutory  Reserve
Ratio (SRR) including excess SRR)   0%
32.3.1.3.0.0  All claims  on central  banks  with residual
maturities of less than six months   0%
32.3.1.4.0.0  "Trade  date”  receivables  arising  from  sales  of
financial instruments, foreign currencies and
commodities   0%
32.3.2.0.0.0  Assets  assigned  a 5% RSF  factor
32.3.2.1.0.0  Unencumbered  Level  1 assets
32.3.2.1.1.0  Qualifying  marketable securities
32.3.2.1.1.1  Issued by  sovereigns   5%
32.3.2.1.1.2  Guaranteed by  sovereigns   5%
32.3.2.1.1.3  Issued  or guaranteed  by central  banks   5%
32.3.2.1.1.4  Issued or guaranteed by BIS, IMF, ECB and
EC or eligible MDBs   5%
32.3.2.2.0.0  20% of derivative  liabilities   5%
32.3.3.0.0.0  Assets  assigned a 10%  RSF  factor
32.3.3.1.0.0  Unencumbered  loans  to financial  institutions
with residual maturities of less than six
months   10%
32.3.4.0.0.0  Assets  assigned a 15%  RSF  factor
32.3.4.1.0.0  Unencumbered  Level  2A assets
32.3.4.1.1.0  Qualifying  marketable  securities
32.3.4.1.1.1  Issued  or guaranteed  by sovereigns   15%
32.3.4.1.1.2  Issued  or guaranteed  by central  banks   15%
32.3.4.1.1.3  Issued  or guaranteed  by PSEs   15%
32.3.4.1.1.4  Issued  or guaranteed  by MDBs   15%
32.3.4.1.2.0  Qualifying non -financial corporate debt
securities  (including  commercial  paper  and
promissory notes) and covered bonds   15%
32.3.4.1.3.0  Qualifying investments in gilt unit trust
backed  by Government  of Sri Lanka  (GOSL)
securities   15%


30  [Limited Sharing]
32.3.4.2.0.0  All other  unencumbered  loans  to financial
institutions  with residual  maturities  of less
than six months   15%
32.3.5.0.0.0  Assets  assigned a 50%  RSF  factor
32.3.5.1.0.0  Unencumbered  Level  2B assets
32.3.5.1.1.0  Qualifying non -financial corporate debt
securities  (including  commercial  paper  and
promissory notes)   50%
32.3.5.1.2.0  Qualifying  non-financial  common  equity
shares   50%
32.3.5.1.3.0  Residential mortgage -backed  securities
(RMBS)  with a credit  rating  of at least AA  50%
32.3.5.2.0.0  HQLA  encumbered  for a period  of six
months  or more  and less than one  year  50%
32.3.5.3.0.0  Unencumbered  loans  to financial  institutions
and central banks with residual maturity
between six months and less than one year   50%
32.3.5.4.0.0  Deposits  held at other  financial  institutions
for operational purposes   50%
32.3.5.5.0.0  All other non HQLA not included in the
above  categories  with residual  maturity  of
less than one year   50%
32.3.6.0.0.0  Assets  assigned a 65%  RSF  factor
32.3.6.1.0.0  Qualifying unencumbered residential
mortgages  with a residual  maturity  of one
year or more   65%
32.3.6.2.0.0  Other qualifying unencumbered loans not
included in the above categories, excluding
loans  to financial  institutions,  with a residual
maturity of one year or more   65%
32.3.7.0.0.0  Assets  assigned an 85% RSF  factor
32.3.7.1.0.0  Cash,  securities  or other  assets  posted  as
initial margin for derivative contracts   85%
32.3.7.2.0.0  Other  unencumbered  performing  loans   85%
32.3.7.3.0.0  Unencumbered  securities  that are not in
default and do not qualify as HQLA   85%
32.3.7.4.0.0  Physical  traded  commodities,  including  gold  85%
32.3.8.0.0.0  Assets  assigned a 100% RSF  factor
32.3.8.1.0.0  All assets  that are encumbered  for a period  of
one year or more   100%


31  [Limited Sharing]
32.3.8.2.0.0  NSFR derivative assets net of NSFR
derivative  liabilities  if NSFR  derivative
assets  are greater  than NSFR  derivative
liabilities   100%
32.3.8.3.0.0  All other  assets not  included  in above   100%

Part  III (b): Required  Stable  Funding  – Off Balance  Sheet  Items

Web -based
Return
Code  Item  Unweighted
Amount  RSF
Factor  Weighted
Amount
32.4.0.0.0.0  Required  Stable  Funding  – Off Balance
Sheet Items
32.4.1.0.0.0  Irrevocable and conditionally revocable
credit  and liquidity  facilities  to any client   5%
32.4.2.0.0.0  Other  contingent  funding  obligations
including products and instruments
32.4.2.1.0.0  Unconditionally  revocable  credit  and
liquidity facilities   0%
32.4.2.2.0.0  Trade  finance  related  obligations  including
guarantees and letters of credit   5%
32.4.2.3.0.0  Guarantees  unrelated  to trade  finance
obligations   0%
32.4.3.0.0.0  Non-contractual  obligations
32.4.3.1.0.0  Potential  requests  for debt repurchases  of the
bank’s own debt or that of related conduits,
securities  investment  vehicles  and other  such
financing facilities   5%
32.4.3.2.0.0  Structured products where customers
anticipate  ready  marketability,  such as
adjustable rate notes and variable rate
demand notes (VRDNs)   5%
32.4.3.3.0.0  Managed  funds  that are marketed  with the
objective of maintaining a stable value   5%
32.4.4.0.0.0  Any other  obligations   5%


32  [Limited Sharing]
Appendix  II of Schedule II

Guidelines  for Computation  of NSFR  Return

Web -based
Return  Code  Item
32.2.0.0.0.0  Total  Available Stable  Funding
32.2.1.0.0.0  Liabilities  and capital  assigned  a 100%  ASF  factor
32.2.1.1.0.0  Total regulatory capital before capital deductions (excluding Tier 2
instruments with residual maturity of less than one year)
Total  amount  of regulatory  capital,  before  the application  of capital  deductions, as
defined in the Banking Act Directions No. 01 of 2016 on Capital Requirements
under  Basel  III excluding  the value  of Tier 2 instruments  with
residual maturity  of less than one  year.
32.2.1.2.0.0  Any other capital instrument with effective residual maturity of one  year or
more
Total  amount  of any capital  instrument  not included  above  that has an effective
residual maturity of one year or more, but excluding any instruments with explicit
or embedded options that, if exercised, would reduce the expected maturity to
less than one year. Value of Tier 2 instruments, with effective residual  maturity
of one year or more,  that is not captured  under  32.2.1.1.0.0  is
eligible  under  this.
32.2.1.3.0.0  Secured and unsecured borrowings and liabilities with effective residual
maturities of one year or more
Total amount of secured and unsecured borrowings and liabilities (including term
deposits) with effective residual maturities of one year or more. Cash flows
falling  below  the one-year horizon  but arising  from  liabilities  with a final maturity
greater than one year do not qualify for the 100% ASF factor. If a bank allows a
depositor to withdraw a term deposit without applying a significant  penalty  that
is materially  greater  than the loss of interest,  or despite a clause that says depositor
has no legal right to withdraw, the entire category should be treated as demand
deposits regardless of the remaining maturity.


deposits regardless of the remaining maturity.
Net deferred  tax liabilities  (if deferred  tax liabilities  are greater  than deferred
tax assets)  should  be treated  according  to the nearest  possible  date on which


33  [Limited Sharing]
 such liabilities could be realised; and minority interest, should be treated
according to the term of the instrument, usually in perpetuity.  Based on that
these  liabilities  are assigned  either  a 100%  ASF factor  if the effective  maturity
is one year or greater under 32.2.1.3.0.0, 50% if the effective maturity is
between  six months  and less than one year  under  32.2.3.4.0.0  or 0% otherwise
under  32.2.4.2.0.0.
32.2.2.0.0.0  Liabilities  assigned a  90%  ASF  factor
32.2.2.1.0.0  Non-maturity deposits and term deposits with residual maturity of less
than one year provided by retail customers and SME
Non-maturity  deposits  and/or  term deposits  with residual  maturity  of less than
one year provided by retail customers and SME. In the case of SME, the total
amount of deposits placed with the bank by an SME shall not exceed Rs. 250
million.
Qualifying  criteria  to be classified as  an SME  are as follows:
(i) The annual  turnover  of the SME  shall  not exceed  Rs. 1 billion  at the time
of obtaining the deposit/granting the facility;
(ii) The annual turnover  should be based on latest available audited financial
statements or certified by a Chartered Accountant or an Approved
Accountant acceptable to the Department of Inland Revenue.  In the case of
draft  financial  statements,  the turnover  certified by a Chartered Accountant
or an Approved Accountant should be obtained within the year;
(iii) The criterion (ii) above shall be applicable if the total amount of deposits
placed with the bank by the SME or the total exposure (including off -
balance sheet exposure) to the SME is greater than or equal  to Rs. 50
million.  Otherwise  banks  may adopt  their own internal mechanism to verify
the annual turnover of the SME.


34  [Limited Sharing]
32.2.3.0.0.0  Liabilities  assigned  a 50%  ASF  factor
32.2.3.1.0.0  Funding with  residual  maturity of  less than  one year provided  by non -
financial corporate customers
Both  secured  and unsecured  funding  with a residual  maturity  of less than one
year provided  by non-financial  corporate  customers.
32.2.3.2.0.0  Operational  deposits
Financial and non -financial customer deposits placed with a bank, in order to
facilitate their access and ability to use payment and settlement systems or make
payments (e.g. Vostro accounts and collection accounts).
32.2.3.3.0.0  Funding  with  residual  maturity  of less than  one year  from  sovereigns,
PSEs, and MDBs
Funding  with residual  maturity  of less than one year provided  by sovereigns,
PSEs,  and MDBs.
32.2.3.4.0.0  Other funding with residual maturity between six months and less than
one year  not included  in the above  categories,  including  funding  provided
by central banks and financial institutions
Secured and unsecured other funding with residual maturity between six months
and less than one year not included in the above categories, including funding
provided  by central  banks  and financial  institutions.  Refer  Banking  Act
Directions  No. 1 of 2016  of Capital  Requirements  under  Basel  III for indicative
list of financial  institutions.  Net deferred  tax liabilities  and minority  interest
shall be  treated  as instructed  in 32.2.1.3.0.0.
32.2.4.0.0.0  Liabilities  assigned  a 0% ASF  factor
32.2.4.1.0.0  All other liabilities and equity not included in the above categories
including other funding with residual maturity of less than six months from
central banks and financial institutions
Liabilities  and equity  categories  not included  in the above  categories,  including
other  funding  with residual  maturity  of less than six months  provided  by central
banks and financial institutions.


35  [Limited Sharing]
32.2.4.2.0.0  Other  liabilities  without  a stated  maturity
This category may include short positions and open maturity positions.  Net
deferred  tax liabilities  and minority  interest  shall  be treated  as instructed  in
32.2.1.3.0.0.
32.2.4.3.0.0  NSFR derivative liabilities net of NSFR derivative assets (if NSFR
derivative liabilities are greater than NSFR derivative assets)
NSFR derivative liabilities net of NSFR derivative assets, if NSFR derivative
liabilities are greater than NSFR derivative assets. i.e. ASF = 0% * MAX
((NSFR derivative liabilities - NSFR derivative assets), 0).
**Derivative liabilities are calculated based on the replacement cost for
derivative  contracts  (obtained  by marking  to market),  where  the contract  has a
negative value. When an eligible bilateral netting ( refer Banking Act
Directions on Leverage Ratio under Basel III for Licensed Commercial Banks
and Licensed Specialised Banks for eligibility criteria ) contract is in place, the
replacement cost for the set of derivative exposures covered by the contract
will be the net replacement cost. In calculating NSFR derivative liabilities,
collateral posted in the form of variation  margin  in connection  with derivative
contracts  must  be deducted  from the negative replacement cost.
NSFR  derivative  liabilities  = (derivative  labilities)  – (total  collateral  posted  as
variation  margin  on derivative  liabilities).
32.2.4.4.0.0  “Trade date” payables arising from purchases of financial instruments,
foreign currencies and commodities
“Trade  date”  payables  arising  from  purchases  of financial  instruments,  foreign
currencies and commodities that (i) are expected to settle within the standard
settlement  cycle  or period  that is customary  for the relevant  exchange  or type
of transaction,  or (ii)  have  failed  to, but  are still expected  to settle.


of transaction,  or (ii)  have  failed  to, but  are still expected  to settle.
32.3.0.0.0.0  Required  Stable  Funding  – On Balance  Sheet  Assets
32.3.1.0.0.0  Assets  assigned  a 0% RSF  factor
32.3.1.1.0.0  Cash  in hand
All cash (coins  and bank  notes)  held by the bank  that is immediately  available
to meet obligations.


36  [Limited Sharing]
32.3.1.2.0.0  Central  bank  reserves  (SRR  including  excess)
Central  bank  balances  and reserves  including  excess  of SRR.  The balance  held
at central  bank  which  represents  part of the capital  held in foreign  currency
should  not be included,  since  it is part of capital.
32.3.1.3.0.0  All claims  on central  banks  with  residual  maturities  of less than  six months
All claims  on central  banks  with residual  maturities  of less than six months.
32.3.1.4.0.0  "Trade date" receivables arising from sales of financial instruments,
foreign currencies and commodities
Trade date receivables arising from sales of financial instruments, foreign
currencies and commodities that (i) are expected to settle within the standard
settlement  cycle  or period  that is customary  for the relevant  exchange  or type
of transaction,  or (ii)  have  failed to,  but are still expected  to, settle.
32.3.2.0.0.0  Assets  assigned  a 5% RSF  factor
32.3.2.1.0.0  Unencumbered  Level  1 assets
32.3.2.1.1.0

(i)

(ii)

(iii)
(iv) Qualifying  marketable  securities
Marketable  securities  with a 0% risk weight  under  the Banking  Act Directions
No. 01 of 2016 on Capital Requirements under Basel III and that shall satisfy
the following:
Traded in large, deep and active repo or cash markets characterised by a low
level of concentration;
Have a proven record as a reliable source of liquidity in the markets (repo or
sale) even during stressed market conditions;
Not an obligation of a  financial  institution  or any  of its  affiliated entities;
At the mark  to market value.
32.3.2.1.1.1  Issued by sovereigns
Government of Sri Lanka - all rupee claims. Foreign Sovereigns - where the
sovereign attracts an External Credit Rating between AAA to AA-. Refer
Banking  Act Directions  No. 01 of 2016  on Capital  Requirements  under  Basel


Banking  Act Directions  No. 01 of 2016  on Capital  Requirements  under  Basel
III for mapping  of notations  of the  credit  rating  agencies  in Sri  Lanka.


37  [Limited Sharing]
32.3.2.1.1.2  Guaranteed  by sovereigns
Government of Sri Lanka - all rupee claims. Foreign Sovereigns - where the
sovereign attracts an External Credit Rating between AAA to AA -.
32.3.2.1.1.3  Issued  or guaranteed  by central  banks
Central  Bank  of Sri Lanka  - all claims.  Foreign  Central  Banks  - where  the
sovereign attracts an External Credit Rating between AAA to AA -.
32.3.2.1.1.4

*

*
*
*
*
*
*
*
*
*
*
* Issued  or guaranteed  by BIS, IMF,  ECB  and EC or MDBs
Issued or guaranteed by Bank for International Settlements (BIS), the
International Monetary Fund (IMF), the European Central Bank (ECB),
European Community (EC) and the following eligible MDBs:
The World Bank Group comprising of the International Bank for
Reconstruction and Development (IBRD) and the International Finance
Corporation (IFC)
The Asian Development Bank (ADB)
The African  Development  Bank  (AFDB)
The European  Bank  for Reconstruction  and Development  (EBRD)
The Inter -American Development Bank (IADB)
The European  Investment  Bank  (EIB)
The European Investment Fund (EIF)
The Nordic Investment Bank (NIB)
The Caribbean  Development  Bank  (CDB)
The Islamic Development Bank (IDB)
The Council  of Europe  Development  Bank (CEDB)
The International  Finance  Facility  for Immunization  (IFFIm)
32.3.2.2.0.0  20% of  derivative  liabilities
20% of derivative  liabilities  (i.e. negative  replacement  cost amounts  before
deducting variation margin posted).