MONETARY BOARD
CENTRAL BANK OF SRI LANKA
 29 November  2017 BANKING ACT DIRECTIONS  No. 06 of 201 7
4

5.9  The cost of a derivative transaction with non -residents shall be paid out of
repatriable funds and/or inward remittances through normal banking
channels.
5.10  All derivatives entered in to by an EB under Directions on Financial
Derivative Products issued on 01 August 2009 (Ref: 33/03/001/0029/002)
and Directions to Authorized Dealers on Forward Contracts in Foreign
Currencies issued on the 11 March 2010 (Ref: 06/04/02/2010) can be
continued till the maturity of the underlying transactions, adhering to th e
previously issued Directions. The unwound derivative contracts entered
under previous Directions can be rebooked only under the terms of the new
Directions.
5.11

 Contracts may be entered into with customers whose underlying transactions
are established with another authorised dealer provided documentary
evidence is furnished by the said authorised dealer on each transaction.
6. Prohibited
Activities  6.1  EBs shall not engage in facilitating derivative transactions on behalf of any
foreign counterpart to resident customers unless the resident customer has
obtained specific approval of the Head of the Department of Foreign
Exchange  of CBSL .
6.2  EBs shall not enter in to derivative transactions in respect of any foreign
currency exposures or risks arising from  foreign currency  deposits or
retained  earnings, held overseas.
6.3  Derivatives involving making of an upfront payment other than option
premiums, in any currency by EB to the customer shall not be permitted.
7. International
Swap and
Derivative
Association
(ISDA)  7.1  EBs shall sign ISDA Master Agreement with the counterparty for
derivatives, unless otherwise both parties agree to refrain from signing
ISDA .
7.2  EBs shall obtain a written consent from the counterparty where it was agreed
to refrain from signing ISDA.


MONETARY BOARD
CENTRAL BANK OF SRI LANKA
 29 November  2017 BANKING ACT DIRECTIONS  No. 06 of 201 7
5

7.3  EBs shall maintain transaction specific agreements and records.
8. Customer
Awareness  8.1  EBs shall ensure that the customers clearly understand the risks of the
derivative transactions and that the customers have established sufficient
measures to monitor and manage the risks arising from the prospective
transactions entering into.
8.2  EBs shall provide adequate information on the transaction, especially with
regard to the conditions and clauses to be incorporated into the product
indicating the relevant benchmarks, fixing rates, strike prices and premium
as the case may be, and a detailed risk scenario analysis to ensure the hi ghest
level of transparency.
8.3  EBs shall obtain a written confirmation from the customer prior to entering
into a derivative transaction that the customer has understood the nature of
the products and their inherent risks.
8.4  EBs shall obtain an undertaking in writing from customers that their total
value of the derivative transactions with all EBs do not exceed the exposure
or the value of underlying transactions.
8.5  EBs shall also satisfy themselves on a professional analysis, of the
institutional capacity and the overall suitability of the customer to engage in
the der ivative products offered by EB prior to entering into such contracts.
9. Eligible
Currencies  9.1  EBs shall conduct derivative transactions in designated currencies as per the
request of the customer and in accordance with internal policies approved by
its Board of Directors.
10. Tenure   10.1  EBs shall ensure that the date of maturity of the derivative contract shall
correspond to the maturity date of the underlying transaction and  shall not,
under any circumstance, extend beyond the date of the underlying
transaction, and the  maximum maturity  period   of  a  derivative transaction


transaction, and the  maximum maturity  period   of  a  derivative transaction
shall  not  exceed  ten  (10)  years.


MONETARY BOARD
CENTRAL BANK OF SRI LANKA
 29 November  2017 BANKING ACT DIRECTIONS  No. 06 of 201 7
6

11. Reference/
Valuation
Benchmark  11.1  The parties involved shall be free to use any benchmark with sufficient
transparency on mutual agreement for reference and valuation purposes.
12. Reporting  12.1  EBs shall submit to the International Operations Department of CBSL on a
monthly basis within 15 days from the end of the month, a statement of the
transactions undertaken within the month in the format attached in Annex I.
13. Definition
 The following definitions shall be applicable for purposes of these Directions .
13.1  Derivative
A derivative is a financi al instrument or a contract  as defined i n Sri Lanka
Accounting Standards.
13.2  Foreign Counterpart
A foreign counterpart  shall mean:
a) A bank outside Sri Lanka
b) An internationally recognised derivative exchange
 13.3  Permitted Derivative T ransactions
a) Swaps
A swap is a bilateral agreement to exchange cash flows at specified
intervals (payment dates) during the agreed -upon life of t he transaction
(maturity or tenure ). Entering into a swap typically does not require the
payment of a fee . Under this direction EBs are eligible to ente r into
interest rate, cross -currency and commodity swaps.
b) Options
An option is an agreement that gives the buyer, who pays a fee
(premium), the right but not the obligation to buy or sell a specified
amount of an underlying asset at an agreed upon price (strike or exercise
price) on or until the expiration of the contrac t (expiry). A call option is
an option to buy the underlying  and a put option is an option to sell the
underlying. Under this Direction EBs are eligible to issue options based
on an underlying interest rate, currency and commodity .


Annex I
Banking Act Directions No. 06 of 2017
Financial Derivative Transactions for Licensed Commercial Banks and Licensed Specialised Banks

Bank - ………………………………………………………………..    Month /Year………/ …………

Table 01 - Monthly Derivative Product Transactions
Product Type: Swaps
Deal
Date  Product  Counterparty/
Customer  Notional Principal  Maturity
Date  Nature of
underlying
transaction  Details of
back to
back
transaction  Uncovered
Exposure  Reference
Benchmark  Remarks
Currency  Amount

Table 02 - Monthly Derivative Product Transactions
Product Type: Forwards
Deal
Date  Counterparty
/Customer  Buy/Sell  Maturity
Date  Currency  Amount  Forward
Rate  Back
to
Back
Deal
(Y/N)  Back to Back
Counterparty  Underlying
Transaction  Remarks


Annex I
Banking Act Directions No. 06 of 2017
Financial Derivative Transactions for Licensed Commercial Banks and Licensed Specialised Banks

Table 03  - Monthly Derivative Product Transactions
Product Type: Currency Options
Deal
Date  Counterparty/
Customer  Option
Exercise
Date  Bank Call  Bank P ut Strike
price  Back to
back Deal
(Y/N)  Back to back
counterparty  Nature of
underlying
transaction  Remarks
CCY * Amount  CCY * Amount

*CCY - Currency
Table 04  - Monthly Derivative Product Transactions
Product Type: Options
Deal
Date  Counterparty/
Customer  Product  Maturity
Date  Currency  Amount  Deal
Rate  Back to
back Deal
(Y/N)  Back to back
counterparty  Underlying
transaction  Remarks


Annex I
Banking Act Directions No. 06 of 2017
Financial Derivative Transactions for Licensed Commercial Banks and Licensed Specialised Banks

Table 05 - Transaction Ca ncelled and Wound -up (Premature)

To be reported within 15 days from the end of the month to the International Operations Department of the Central Bank of Sri Lanka through
dfx@cbsl.lk .   Deal
Date  Product
as
reported
to CBSL  Customer/
Counterparty  Notional
Principle  Reference to
original transaction
already reported to
the CBSL  Original
Date of
Maturity  Date of
cancellation or
winding up Details of
Back to
Back
Transaction  Reference/
Benchmark  Remarks/
Reasons for
cancellation


MONETARY BOARD
CENTRAL BANK OF SRI LANKA
12 December  2017   BANKING ACT DIRECTIONS  No. 07 of 2017
1

 FOREIGN CURRENCY BORROWINGS BY LICENSED BANKS
Foreign currency borrowings are an  important source of funding for banks. However,
excessive and unregulated foreign capital flows are likely to cause unwarranted
macroeconomic and financial stability concerns in a country.
The Monetary Board  introduces a policy framework for foreign currenc y borrowings of
licensed banks with the objecti ves of addressing  the high dependence  on foreign currency
borrowings  and the resulting  exposure  of licensed banks  to foreign exchange risk and
minimising  the pressure on  the reserves and exchange rate of the country arising  from large
borrowings in foreign  currency.
Accordingly, the Monetary Board  issues Directions to licensed commercial banks  (LCB)  and
licensed specialised banks  (LSB)  as follows:
1. Empowerment
under the
Banking Act  1.1  In terms of Sections 46(1) and 76 J(1) of the Banking Act  No. 30 of
1988 , in order to ensure the soundness of the banking system , the
Monetary Board is empowered to issue Directions to all or any LCB
and LSB, respectively, regarding the manner in which any aspect of
the business of such bank or banks is to be conducted.
2. Appl icability  2.1  These Directions shall be applicable to  all foreign currency
borrowings  of LCBs and LSBs , hereinafter referred to as licensed
banks .
3. Tenure  3.1  Foreign currency borrowings with a remaining maturity of:
(i) 3 years or less  will be considered as short -term borrowings; and
(ii) more than 3 years will be considered as long -term borrowings.
4. Limits on
Foreign
Currency
Borrowings  4.1  The maximum outstanding amount of foreign currency borrowings
obtained by a licensed bank shall be determined as a percentage of
total assets as per the latest audited accounts.


MONETARY BOARD
CENTRAL BANK OF SRI LANKA
12 December  2017   BANKING ACT DIRECTIONS  No. 07 of 2017
2

4.2  The percentage of foreign currency borrowings of a licensed bank
shall be based on the sum of scores assigned for each licensed bank
based on the external long term credit rating and the total capital
ratio of the bank as given in Tables 1 and 2 below:
 Table 1 – Calculation of the Score
Bank’s Credit Rating  Bank’s Total
Capital Ratio  Score Assigned
to Each Cell
AAA to AA - or equivalent  >14.0%  3
A+ to A - or equivalent  13.6%  - 14.0%  2
BBB+ to BBB - or equivalent  12.5% - 13.5%  1
Below BBB -  <12.5%  0
Table 2 - Borrowing Limits  as a Percentage of Total Assets
Sum of Score  Short -Term  Total
1 - 2 1.5%  5.0%
3 - 4 1.5%  7.5%
5 - 6 1.5%  10.0%

5. Approval of the
Monetary
Board  5.1  Any foreign currency borrowings in excess of limits specified in
Direction 4 above  shall be undertaken with the prior written approval
of the Monetary Board, under exceptional circumstances of national
interest.
5.2  The Monetary Board may grant such approval to exceed the
applicable limit of foreign currency borrowing s of a licensed bank by
5% of assets, on a case -by-case basis, subject to terms and conditions
it may deem fit, taking into consideration of the  macroprudential
aspects  and provisions in Directions 6, 7  and 8 below.
5.3  Borrowings  approved by the Monetary Board under the Direction 5.2
above  shall be undertaken within 3  months from the date of the
approval of the Monetary Board .


MONETARY BOARD
CENTRAL BANK OF SRI LANKA
12 December  2017   BANKING ACT DIRECTIONS  No. 07 of 2017
3

6. General Terms
and Conditions  6.1  All foreign currency borrowings of a licensed bank shall be approved
by the Board of Directors  of the bank .
6.2  Licensed banks shall comply with al l prudential requirements  at all
times , including, but not limited to, minimum capital  under Basel III ,
Statutory Liquid Assets Ratio s, Liquidity Coverage Ratio  and Net
Open Position .
6.3  Licensed banks shall hedge interest rate and  foreign exchange  risks
and manage the maturity mismatch arising from foreign currency
borrowings .
6.4  Hedging with an i nternational counterparty is encouraged wher e the
foreign currency borrowed  is converted to another foreign currency.
6.5  Foreign currency borrowings with a maturity of less than a year shall
not be utilised to grant credit facilities with a maturity of more than a
year.
6.6  Licensed banks shall  prove  their ability to service repayments  of
foreign currency borrowing in a timely manner.
7. Eligible
Foreign
Currency
Borrowings  7.1  Lender should have a good track record as a stable financial
institution. Possible lenders are:
(i) Multilateral Development Banks
(ii) Banks with international repute
(iii) Foreign Government owned or affiliated agencies
(iv) Head Office and branches of foreign banks
7.2  Interest rates (inclusive of all related costs) of the borrowing shall be
competitive .
7.3  Borrowings shall not be settled prior to the initial specified date of
settlement  and shall not carry call or put option features.


MONETARY BOARD
CENTRAL BANK OF SRI LANKA
12 December  2017   BANKING ACT DIRECTIONS  No. 07 of 2017
4

7.4  Bunching effect from repayments shall not arise.
7.5  Borrowings shall not result in excessive credit growth .
8. Utilisation of
Foreign
Currency
Borrowings  8.1  Long -term foreign  currency  borrowings shall be utilised for
lending/investment purposes in the country to :
(i) fund export s, import substitution, infrastructure , government
development projects  and small and medium enterprises
(ii) settle or retire current foreign currency loans
(iii) invest in Sovereign Debt of the Government of Sri Lanka and
activities of national importance
9. Application to
be submitted  9.1  Licensed banks may submit a written request with following details
to obtain the Monetary Board approval under Direction 5 above:
(i) Profile of the Lender
(ii) Features of the Loan
(iii) Specific purpose/objectives with target s
(iv) Performance status of existing foreign  currency l oans
(v) Proposed risk management mechanism
10. Exclusion from
the maximum
limits  10.1  Foreign currency borrowings from the Head Office  or any branch
operating outside Sri Lanka of an LCB  incorporated outside Sri
Lanka will be exempted from th e limits specified in Direction  4
above, provided the proceeds are used for the intended purpose the
borrowing is obtained.
10.2  Borrowings utilised for investments in Development Bonds,
Sovereign Bond s and Treasury  Bonds  issued by the Government of
Sri Lanka,  held to maturity for more than 3 years .
11. Interpretations  11.1  Total assets shall be  the amount as per the latest audited statements.
11.2  Foreign currency shall mean any designated foreign currency.


l2Decemb er 2017MONETARY BOARI)
CENTRAL BANK OF SRI LANKA
BANKING ACT DIRECTIONS No.07 of20l7
12.Implementation l2.I These Directions shall come into effect from 01 January 2018.
13. Transitional
Arrangement
14. Revocation13.1 Any licensed bank which has obtained foreign currency borrowings
in excess of the maximum limit specified under Direction 4 above
shall not be permitted to borrow further, until such time the
outstanding amount of foreign cuffency borrowings falls below the
maximum limit.
13.2 Approvals granted by the Monetary Board to a licensed bank
exceed the maximum limits on foreign currency borrowings prior
these Directions will lapse by 3 1 March 20 1 8.
l4.l The Circular No. BD/FX/196 dated 13 January 1997 issued by the
Chief Accountant is hereby revoked.
fl"**-
Dr. Indrajit Coomaraswamy
Chairman of the Monetary Board and
Governor of the Central Bank of Sri Lankato
to


CENTRAL BANK OF SRI LANKA
BANK SUPERVISION DEPARTMENT
0l February 2017 CIRCULAR No.01 of 2017
IMPLEMENTATION OF BUDGET PROPOSALS 2017
IN RESPECT OF BANKING SERVICES
We wish to draw your attention to the national policy approved in the Budget 2017 in respect
of the following categories of banking service requirements of the country and request all
licensed banks to take appropriate measures to implement same.
I Distribution 1.1
of Credit to
Identified
Sectors
Enhancing
Banking
Services
3 Definition 3.12.1Credit granted by licensed banks may not be less than the following
percentages of total loans:
(D 10 per cent each for Small and Medium Enterprises (SMEs),
Exports and Tourism activities
(ii) 10 per cent for Agriculture in line with the existing circulars
(iii) 5 per cent each for Youth and Women for credit needs
Credit granted by bank branches for business development in the
respective area may not be less than 15 percent of deposits mobilized
by each branch within the same area.
Banks may streamline existing processes to expedite the grant of
credit with a value of less than Rs. 5 million in less than 1 month.
At least one branch in each district may be opened on all 7 days of
the week excluding the religious holidays.
Enterprises with an annual turnover not exceeding Rs. 750mn will be
considered as SMEs for the purpose of this circular in line with the
definition of SME adopted by the Department of Industry and
Commerce in its National Policy Framework for SME Development.
Credit granted to agriculture shall continue to be in terms
Circulars on Mandatory Lending to Agriculture Sector issued
Director of Bank Supervision.2.2
2.3
of the
by the3.2


0l Februarv 2017CENTRAL BANK OF SRI LANKA
BANK SUPERVISION DEPARTMENT
CIRCULAR No.01 of 2017
J.JWhen classifying credit to the above sectors for the purpose of
compliance with this circular, credit granted to certain borrowers in
sectors in Item 1 above may fall within more than one sector in the
event such credit overlaps across identified sectors.
Commencing 1 July 2017, all licensed banks shall report details of
Item 1 above to the Director of Bank Supervision within 30 days
from the end of each quarter in the attached format in order to
monitor the bank's compliance with the national policy.
IA A M Thassim
Director of Bank Supervision4 Reporting 4.1
W


Annex I
Distribution of Credit Sector-wise under Budget Proposals 2017
Name of Bank
Position as at
Seetor Credit Outstanding
(Rs. Mn)As a 96 of Total
Credit Granted
IAgriculture
2Small and Medium
Enterprises
1JExport
4Tourism
5Youth
6Women
Note l: Reference to Bank Supervision Department Circular No. 01 of 2017 dated 01't
February 2017.
Note 2: The above details shall be e-mailed to banksup@cbsl.lk within 30 days from the end
ofeach quarter.
Date:
Name and designation of authorised officer


CENTRAL BANK OF SRI LANKA
BANK SUPERVISION DEPARTMENT
?t.N4av 2017 CIRCULAR No.02 of20l7
Interest Rates on Credit Products
Instructions of the Monetary Board on interest rates on credit cards and other loans and
advances and penal interest rates charged on overdue loans and advances by licensed banks
are hereby issued for implementation commencing 01 July 2017.
1 InterestRates 1.1 Commencing 01 July 2017, licensed banks may offer or charge
interest rates on credit products as per their policies.
2 Adequate
Disclosures
Basis of
Computing
the Penal
Interest2.1 Licensed banks shall publish:
(i) Applicable interest rates per annum on credit products, in a
legible manner when promoting credit products in any media at
all times.
(ii) Applicable penal interest rates per annum , if any, and the basis
of computation, at least in the bank's website for the information
of the public and shall be updated regularly to reflect the current
rates.
2.2 Licensed banks shall inform the borrowing customers of:
(i) Applicable interest rates on credit products prior to completion
of credit documentation with respective borrowers.
(ii) Any subsequent changes to the interest rates prior to effecting
such revision to existing credit.
(iii) Applicable penal interest rates, if any, and the basis
computing such rates prior to charging of penal interest at
point ofsuch overdue credit.
i. f Penal interest, if any, shall be charged only for the amount in arrears
during the overdue period.of
the


2b NfLav 2017CENTRAL BANK OF SRI LANKA
BANK SUPERVISION DEPARTMENT
CIRCULAR No.02 of20l7
4 Weekly
Reporting
5 Revocation
of previous
circulars4.1
5.1Licensed banks shall report interest rates on all loans and advances
and penal interest rates through the Web Based Off-Site Surveillance
System retum BSD-V/F- 1 3-IR-Interest Rates.
The following circulars applicable to interest rates issued by the
Director of Bank Supervision are hereby revoked:
(i) Circular Ref. No. 02117160010021001 dated 21 September 2010
on Reduction of Interest Rates.
(ii) Circular Ref. No. 02117160010021001 dated 17 April 2012 on
Interest Rates on Credit Cards and Housing Loans.
(iii) Circular Ref. No. 02117160010021001 dated 07 June 2013 on
Interest Rates on Credit Cards and Other Loans and Advances.
(iv) Circular Ref. No.02117160010021001 dated 26 July 2013 on Cap
on Penal Interest Rates Charged by Licensed Banks on Loans
and Advances.
,l'l-
A A M Thassrm
Director of Bank Supervision


CENTRAL BANK OF SRI LANKA
BANK SUPERVISION DEPARTMENT
>1 Mav 2017 CIRCULAR No.03 of20l7
Concessions in Respect of Credit Granted to Flood Affected Borrowers
Licensed banks may grant the following concessions on a case-by-case basis to their
borrowers who have been affected by the recent floods, adverse weather conditions and
connected circumstances in terms of the national policy adopted to facilitate rehabilitation of
businesses and normal operations of such borrowers in the national interest.
I Moratorium 1.1 Grant a moratorium of not exceeding 3 months with effect
from today in respect of all performing credit facilities of
borrowers as at 25 May,2017 which have been affected by
floods, adverse weather conditions and connected
circumstances.
2 Penal lnterest 2.1Waive the penal interest on overdue loans of the borrowers
under the above moratorium and non-performing borrowers
as affected above who are willing to settle their loans on
rescheduled terms as agreed with banks in order for them to
recommence/restructure their business activities.
Licensed banks shall maintain necessary documents to
substantiate grant of such concessions.
Licensed banks shall report details of such borrowers in the
annexed format to the Director of Bank Supervision by 30
Iune 2017 .3 Reporting 3.1
3.2
\hM,"ry
Actg. Director of Bank Supervision


Annex
Circular No 3 of 2017
Concessions in Respect of Credit Granted to Flood Affected Borrowers
Details of Borrowers Affected by Recent Floods
Name of Bank:
I certifu that the information submitted in the above return is to the best of rny knowledge and belief,
correct.Serial
NumberName of
BorrowerName of
BranchDivisional
SecretariatPurpose of LoanAmount Outstanding
Rs.'000s
(As at 25.05.2017)
Please e-mail to dbsd@cbsl.lk by 30 June 2017Name and Designation of Authorised Officer


MONETARY BOARDCENTRAL BANK OF SRI LANKA18 October 2018 BANKING ACT DETERMINATION No. 01 of 2018ANNUAL LICENCE FEE OFLICENSED COMMERCIAL BANKS AND LICENSED SPECIALISED BANKSDetermination made by the Monetary Board of the Central Bank of Sri Lanka under Sections 8 and 76D(6) of the Banking Act, No. 30 of 1988, as amended.In terms of Sections 8(1) and 76D(6) of the Banking Act, the Monetary Board has determined that every licensed commercial bank and licensed specialised bank shall pay the licence fee in respect of the calendar years 2019 and 2020 to the Central Bank of Sri Lanka on or before 31st day of January of each year, based on the total assets of such bank as at the end of the previous year, as set out in the table below.Annual licence fee for years 2019 and 2020Total Assetsas at the end of the previous year (Rs. Bn)Licence Fee (Rs. Mn)Above 100033Above 750 to 100032Above 500 to 75026Above 200 to 50023Above 125 to 20017Above 75 to 12511.625 to 756Less than 253
Dr. Indrajit CoomaraswamyChairman of the Monetary Board and Governor of the Central Bank of Sri Lanka


6. Permitted
Agent Banking
Business30 November 2018MONETARY BOARI)
CENTRAL BANK OF SRI LAI{KA
BANKING ACT DIRECTIONS No.10 of2018
AMENDMENTS TO DIRECTIONS ON APPOINTMENT OF AGENTS
OF LICENSED BANKS
The following new Direction shall replace Direction 6 of the Banking Act Directions No. 02 of
2018 on appointment of agents of licensed banks dated 24May 2018.
6.), The agent shall provide the following banking products/services only
to the existing customers of the licensed bank:
(i) deposit acceptance;
(ii) deposit withdrawal;
(iii) receiving loan repayments;
(iv) receiving credit card payments;
(v) facilitating utility bill payments;
(vi) account balance request;
(vii) fund transfer within the same licensed bank; and
(viii) any other activity as approved by CBSL.
Cash delivery activities handled by a third party on behalf of the
licensed bank where such third party meets the customers of the
licensed bank to collect or deliver cash shall be treated under
Direction 6.1(viii). Such activities shall be covered under a
comprehensive insurance policy and licensed bank shall be able to
claim insurance on any risk covering the entire process of cash
collection/delivery and storage at third party vault. Direction 9.1(vii)
does not apply for such activities.
The agent may also provide the service of disbursement of inward
remittances.
,L"="" N ^.7
Dr. Indrajit Coomaraswamy
Chairman of the Monetary Board and
Governor of the Central Bank of Sri Lanka6.2
6.3


30 November 2018MONETARY BOARI)
CENTRAL BANK OF SRI LANKA
BANKING ACT DIRECTIONS No.11 of2018
FOREIGN CURRENCY BORROWINGS BY LICENSED BANKS
Foreign currency borrowings are an important source of funding for banks. However,
excessive and unregulated foreign capital flows are likely to cause unwarranted
macroeconomic and financial stability concerns in a country.
The Monetary Board introduces a policy framework for foreign curency borrowings of
licensed banks with the objectives of addressing the high dependence on foreign cumency
borrowings and the resulting exposure of licensed banks to foreign exchange risk and
minimising the pressure on the reserves and exchange rate of the country arising from large
borrowings in foreign currency.
Accordingly, the Monetary Board issues Directions to licensed commercial banks (LCBs)
and licensed specialised banks (LSBs) as follows:
1. Empowerment
under the
Banking Act
2. Applicability 2.1
3. Tenure
4. Limits on
Foreign
Currency
Borrowings1.1In terms of Sections 46(1) and 76J(l) of the Banking Act No. 30 of
1988, in order to ensure the soundness of the banking system, the
Monetary Board is empowered to issue Directions to all or any LCB
and LSB, respectively, regarding the manner in which any aspect of
the business ofsuch bank or banks is to be conducted.
These Directions shall be applicable to all foreign cuffency
borrowings made from local and foreign sources by LCBs and
LSBs, hereinafter referred to as licensed banks, covering Domestic
Banking Units and Off-Shore Banking Units.
Foreign cumency borrowings with a remaining maturity of:
(i) 1 year or less will be considered as short-term borrowings; and
(ii) more than 1 year will be considered as long-term borrowings.
The maximum outstanding amount of foreign cuffency borrowings
obtained by a licensed bank shall be determined as a percentage of
total assets as per the latest annual audited accounts or interim
accounts certified by the Extemal Auditor of the licensed bank.3.1
4.1


30 November 2018MONETARY BOARI)
CENTRAL BANK OF SRI LANKA
BANKING ACT DIRECTIONS No. 11 of2018
5.1 5.
5.2Approval of the
Monetary
Board4.2 The percentage of foreign currency borrowings of a licensed bank
shall be based on the sum of scores assigned for each licensed bank
based on the external long-term credit rating and the total capital
adequacy ratio of the bank as given in Tables I and2 below:
Table 1 - Calculation of the Score
Bank's Credit Rating Bank's Total
Capital
Adequacy
RatioScore
Assigned to
Each Cell
AAA to AA- or equivalent >14.jYoaJ
A+ to A- or equivalent 13.6% - t4.0% 2
BBB+ to BBB- or equivalent r2.5% - 13.s%
Below BBB- <12.5Yo 0
Table 2 - Borrowing Limits as a Percentage of Total Assets
Sum of Score Short-Term Total
t-2 t5% 5.0%
3-4 2.0% 7.5%
5-6 25% t0.0%
Any foreign currency bonowings in excess of limits specified in
Direction 4 above shall be undertaken with the prior written
approval of the Monetary Board, under exceptional circumstances of
national interest.
The Monetary Board may grant such approval to exceed the
applicable limits of foreign cuffency bonowings of a licensed bank
by 5% of assets, on a case-by-case basis, subject to terms and
conditions it may deem fit, taking into consideration of the
macroprudential aspects.
5.3 Borrowings approved by the Monetary Board under the Direction
5.2 above shall be undertaken within 3 months from the date of the
approval of the Monetary Board.


30 November 2018MONETARY BOARI)
CENTRAL BANK OF SRI LANKA
BANKING ACT DIRECTIONS No.11 of2018
6. General Terms 6.1
and Conditions
7. Eligible
Foreign
Currency
Borrowings6.2
6.3
6.4
6.5
6.6(i) All foreign currency borrowings of a licensed bank shall be
approved by the Board of Directors of the licensed bank or the
regional monitoring office or the management committee
operating under delegated authority of the Board of Directors of
foreign banks.
(ii) The Board of Directors or the relevant authority as specified
above, may establish a pre-approved limit for foreign currency
borrowings as an altemative to approving each borrowing.
Licensed banks shall comply with all prudential requirements at all
times, including, but not limited to, minimum capital adequacy ratio
under Basel III, Statutory Liquid Assets Ratio, Liquidity Coverage
Ratio, Net Stable Funding Ratio, and Net Open Position.
Licensed banks shall hedge interest rate and foreign exchange risks
and manage the maturity mismatch arising from foreign currency
borrowings.
Hedging with an international counterparty is encouraged where the
foreign cuffency borrowed is converted to another foreign currency.
Licensed banks shall put in place intemal policies and procedures
approved by the Board of Directors for management of foreign
crurency assets and liabilities along with appropriate foreign
currency maturity mismatch limits.
Licensed banks shall prove their ability to service repayments of
foreign currency borrowing in a timely manner.
7.1 Lender should have a good track record as a stable financial
institution. Possible lenders are:
(i) Multilateraldevelopmentbanks,
(ii) Lending institutions with intemational repute,
(iii) Foreign Govemment owned or affiliated agencies,
(iv) Head Office and branches of foreign banks,
(v) Licensed banks in Sri Lanka.


30 November 2018CENTRAL BANK OF SRI LANKA
BANKING ACT DIRECTIONS No. 11 of2018
8. Utilisation of
long-term
Foreign
Currency
Borrowings
9. Application to
be submitted
l0.Exclusion from
the maximum
limits7 .2 Interest rates (inclusive of all related costs) of the borrowing shall be
competitive.
7.3 Borrowings shall not be settled prior to the initial specified date of
settlement unless the loan agreement provides for an accelerated
prepayment mechanism.
7.4 Licensed banks shall mitigate the impact of bunching effect.
7.5 Borrowings shall not result in excessive credit growth.
8.1 Long-term foreign currency borrowings shall be utilised for
lending/investment purposes to :
(D fund exports, import substitution, infrastructure, govemment
development projects and small and medium enterprises;
(ii) settle or retire current foreign currency loans;
(iii) invest in Sovereign Debt of the Government of Sri Lanka and
fund the Government of Sri Lanka for activities of national
importance;
(iv) fund viable overseas business expansions of local corporates;
and
(v) fund viable projects or businesses of overseas entities in Sri
Lanka or overseas.
9.1 Licensed banks may submit a written request with the following
details to obtain the Monetary Board approval under Direction 5
above:
(i) Profile of the Lender,
(ii) Features of the Loan,
(iii) Specifi c purpose/objectives with targets,
(iv) Performance status of existing foreign currency loans,
(v) Proposed risk management mechanism.
10.1 Foreign curency borrowings from the Head Office or its branches
operating outside Sri Lanka of an LCB incorporated outside Sri
Lanka will be exempted from the limits specified in Direction $
above, provided the proceeds are used for the intended purpose the


30 November 2018MONETARY BOARD
CENTRAL BANK OF SRI LANKA
BANKING ACT DIRECTIONS No. I1 of2018
I 1. Interpretations
l2.Implementation
l3.Transitional
Arrangement
l4.Revocationborrowing is obtained.
10.2 Bonowings utilised for investments
Government of Sri Lanka.
1 1.1 Total assets shall be the amount as
accounts or interim accounts certified
licensed baxk.in Securities issued by the
per the latest annual audited
by the External Auditor of the
Dr. Indrajit Coomaraswamy
Chairman of the Monetary Board and
Governor of the Central Bank of Sri Lanka1 1.2 Foreign currency shall mean any designated foreign currency.
12.1 These Directions shall come into effect from the date of issue of
these Directions.
13.1 Any licensed bank which has obtained foreign currency borrowings
in excess of the maximum limit specified under Direction 4 above
shall not be permitted to borrow further, until such time the
outstanding amount of foreign currency borrowings falls below the
maximum limit.
14.1 The following Direction and Circular are hereby revoked.
(i) Banking Act Direction No. 7 of 2017 on Foreign Currency
Borrowings by Licensed Banks.
(ii) The Circular No. BD/FX1196 dated 13 January 1997 issued by
the Chief Accountant.
*Ltg*tv"'(


28 December 2018ffi
MONETARY BOARI)
CENTRAL BANK OF SRI LA}IKA
BAI\KING ACT DIRECTIONS No. 12 of2018
LEVERAGE RATIO IJI\IDER BASEL III
FOR LICENSED COMMERCIAL BANKS Ah[D LICENSED
SPECIALISED BAIIKS
In terms of the powers conferred by Sections 46(1) and 76(J)(l) of the Banking Act No. 30 of
1988, as amended, the Monetary Board issues these Directions for the implementation of
Leverage Ratio under Basel III for licensed commercial banks and licensed specialised banks
(hereinafter referred to as licensed banks) in accordance with "Basel III: Finalising post-crisis
reforms" issued by the Basel Committee on Banking Supervision in December 2017. The aim
of these Directions is to introduce a framework with a simple, transparent, non-risk based
Leverage Ratio to act as a credible supplementary measure to the risk based capital requirement
in order to restrict the build-up of leverage in the banking sector, helping to avoid any
destabilising deleveraging processes which can damage the broader financial system and the
economy, and reinforce the risk-based requirements with a simple, non-risk based'obackstop"
measure.
l. Empowerment l.l In terms of Sections 46(l) and 76J(l) of the Banking Act, in
order to ensure the soundness of the banking system, the
Monetary Board is empowered to issue Directions to all or any
licensed bank, regarding the manner in which any aspect of the
business ofsuch bank or banks is to be conducted.
2. Scope of
Application
3. Leverage Ratio
Computation2.1These Directions shall be applicable to every licensed bank:
(a) incorporated in Sri Lanka on a solo and consolidated
basis; and
(b) branches ofbanks incorporated or established outside Sri
Lanka on a standalone basis.
Commencing I January 2019, the minimum Leverage Ratio
for licensed banks shall be 3 per cent.
Leverage Ratio shall be computed as prescribed below:
Leverage Ratio:
ICapital Measure3.1
3.2
Exposure Measure


28 December 2018,,@.,=#taffiH\qE:g
MONETARY BOARI)
CENTRAL BANK OF SRI LAI\KA
BAI\KING ACT DIRECTIONS No. 12 of2018
4. Capital Measure 4.1
5. Exposure Measure 5.1
6. Steps to Secure
Compliance3.3 The Leverage Ratio to be calculated on a quarterly basis.
Licensed banks shall use Tier 1 capital (after deductions) as
specified in the Banking Act Directions No. 01 of 2016 on
Capital Requirements under Basel III as Capital measure for
Leverage Ratio computation.
The exposure measure is computed as follows:
Exposure Measure : On balance sheet exposures (excluding
on-balance sheet derivative and Securities Financing
Transaction exposures) * Derivative exposures * Securities
Financing Transactions exposures + Off balance Sheet
exposures
Licensed banks shall not take account ofphysical or financial
collateral, guarantees or other credit risk mitigation techniques
in calculating the exposure measure.
To ensure consistency, any item deducted from Tier 1 capital
according to the Basel III framework and regulatory
adjustments other than those related to liabilities shall be
deducted from the exposure measure.
Guidance on calculation of exposure measure is in Schedule I
hereto.
Where a licensed bank has failed to comply with the minimum
Leverage Ratio, such bank shall not pay dividends or repatriate
profits or adopt any other measure that will further deteriorate
the regulatory capital position of the licensed bank until such
compliance is effected and confirmed by the Director of Bank
Supervision5.2
5.3
5.4
6.t


28 December 2018MONETARY BOARI)
CENTRAL BAIIK OF SRI LANKA
BANKING ACT DIRECTIONS No. 12 of2018
7. Disclosure
Requirements
8. Regulatory
Reporting8.17.1 The disclosure requirements prescribed in the Banking Act
Directions No. 01 of 2016 on Capital Requirements under
Basel III shall be applicable in respect of Leverage Ratio.
Every licensed bank shall report the Leverage Ratio as at the
last calendar day of each quarter through the web-based off-
site surveillance system via the quarterly return (BSD-QF-36-
LR and BSD-QF-36-EM) within one month after the end of
each quarter.
ilbc*t*^"-1
Dr. Indrajit Coomaraswamy
Chairman of the Monetary Board and
Governor of the Central Bank of Sri Lanka


Banking Act Directions No.12 of 2018
Leverege Ratio under Basel III
for Licensed CommercialBanks and Licensed Specialised Banla
SCHEDULE I


Calculation of Exposure Measure of Leverage Ratio under Basel III
1 On-Balance Sheet Exposures
1.1 The on-balance sheet values included in the exposure measure must be in line with the
reported values under the regulatory reporting balance sheet except for derivative assets
and securities financing transactions (SFT).
1.2 The on-balance sheet assets deducted from Tier 1 capital should be deducted from the
exposure measure, which ensures that Tier 1 capital and the leverage ratio exposure
measure are treated consistently and therefore, avoids double-counting.
1.3 Netting of loans and deposits are not allowed.
1.4 The basis for leverage ratio exposure measure for cash pooling arrangements should be the
single account balance and not the individual participating customer accounts. Cash
pooling refers to arrangements involving treasury products whereby a bank combines the
credit andlor debit balances ofa several accounts ofan individual or a group into a single
account balance to facilitate cash and/or liquidity management.
2 Derivative Exposures
2.1 Licensed banks shall calculate the amount to be included in the exposure measure for each
derivative transaction separately as follows:
Derivative Exposure : s x (RC + PFE)
0 Alpha is set at 1.4
RC Replacement Cost
PFE Potential Future Exposure over the remaining life of the contract
2.2 Replacement Cost (RC)
RC of a transaction is the positive mark to market value of the contract:
RC : max {(V- CVMr ) + CVMp;O}
V Market value of the individual derivative transaction or of the
derivative transactions in a netting set
CVMr Cash Variation Margin (CVM) received by the bank
CVMp CVM provided by the bank


2.3Potential Future Exposure Gf'B)
(a) PFE represents an 'Add-On' arising from the potential exposure over the
remaining life of the contract.
PFE: Mukiplier x Add on Aggregate
(b) Multiplier is fixed at one.
(c) Add-on Aggregate is calculated by multiplying the notional principal amount of
the contract from potential add on factor given in Table 1.
(d) The following Add-on factors will apply to financial derivative contracts based
on the residual maturity.
Table 1 - Add on Factors for Financial Derivatives
(e) For contracts with multiple exchanges of notional principal, the notional principal
amounts are to be multiplied by the number of remaining payments in the
contract.
(0 No PFE shall be calculated for single currency floating swaps I floating interest
rate swaps.
(g) For exchange rate and interest rate hybrid products, e PFE must be calculated by
adding the applicable two respective Add-on factors.
3
3.1Securities Financing Transaction
SFTs are transactions such as repurchase
security lending and borrowing and margin
transactions depends on market valuations.
Exposure Measure for SFT are calculated as
(a) When a bank acts as a principalagreements, reverse repurchase agreements,
lending transactions, where the value of the
follows: 3.2One year or less
Over one year to five years
SFT Exposure: Gross SFT Assets * max {0, [>(Ei) ->(Ci)]]


(b) When a bank acts as an agent
SFT Exposure : max {0, [r(Ei) - >(Ci)]]
Ei : total fair value of securities and cash lent to a counterparty for all transactions
included
Ci : total fair value of cash and securities received from the counterparty for all
transactions
3.3 The gross SFT assets must be adjusted as follows:
(a) Exclude the value of any securities received under a SFT, where the bank has
recognised the securities as an asset on the balance sheet, and
(b) Cash payables and cash receivables in SFTs with the same counterparty may be
measured net if all the following criteria are met:
(i) Transactions have the same explicit final settlement date.
(ii) The right to set off the amount owed to the counterparty with the amount
owed by the counterparty is legally enforceable both in the normal course
of business and in the event of default, insolvency and bankruptcy.
(iiD The counterparties intend to settle net, settle simultaneously, or the
transactions are subject to a settlement mechanism that results in the
functional equivalent of net settlement.
3.4 Bilateral Netting for SFTs (Applicable to counterparty exposurel)
(a) With respect to a netting set of SFTs subject to a valid bilateral netting agreement
referred in item 6 below, the current exposure for the netting set is calculated as
the greater of the current market value of securities and cash provided to a
counterparty under the SFTs less the current market value of securities and cash
received from the counterparty under the SFTs and zero.
(b) For purpose ofthe current exposure calculation for SFTs, only the effects ofa
valid bilateral netting agreement will be recognized. Where no valid bilateral
netting agreement is in place, each individual SFT must be treated individually.
3.5 SFT Exposure:
(a) If a bank acts as an agent in respect ofan SFT (or a portfolio of SFTs) entered
into by a customer of the bank and the bank provides an indemnity or guarantee
1 max {0, [x(Ei) - x(Ci)]]


to the customer for any difference between the value of the security or cash
provided by the customer under the SFT and the value of security or cash
received by the customer, the bank will only be required to calculate its current
exposure using the given formula, as in paragraph 3.2 (b).
(b) [f, however, a bank's exposure in respect of SFT goes beyond an indemnity or a
guarantee for the difference in value between the assets provided and received
and includes exposure to the underlying cash or securities in the SFT, the bank
will need to calculate its SFT exposure as the bank is acting as principal. This
would be the case where a bank manages collateral received in connection with
an SFT for its own account rather than for the customer's account.
4 Off Balance Sheet Exposures (OBS)
4.1 OBS exposures considered shall be the value after applying Credit Conversion Factors
(CCF) specified under the Banking Act Directions No. 01 of 2016 on Capital Requirements
under Basel III excluding any items considered as derivative exposures or SFT.
4.2 ln calculating OBS exposures, any provisions in respect of OBS, if any, shall be deducted
from OBS exposures after the application of the relevant CCF.
5
5.1Conditions for Eligible Cash Variation Margins
In calculating derivative exposure measure, the cash portion of variation margin exchanged
between counterparties may be viewed as a form of pre-settlement payment, if the
following conditions are met:
(a) Cash variation margin (CVM) would satisfy the non-segregation criterion if the
recipient counterparty has no restrictions by law, regulation, or any agreement
with the counterparty on the ability to use the cash received.
(b) Variation margin is calculated and exchanged at least daily, based on mark-to-
market valuation of derivative positions. The cash variation margin is received
in the same cuffency as the currency of sefflement of the derivative contract.


in the same cuffency as the currency of sefflement of the derivative contract.
(c) Variation margin exchanged is the full amount that would be necessary to fully
extinguish the mark to market exposure ofthe derivative subject to the threshold
and minimum transfer amounts applicable to the counterparty.


5.2(d) Derivative transactions and variation margins are covered by a single master
netting agreement (MNA) between the legal entities that are the counterparties
in the derivatives transaction. The MNA must explicitly stipulate that the
counterparties agree to seffle net of any payment obligations covered by such a
netting agreement, taking into account of any variation margin received or
provided if a credit event occurs involving either counterparty.
If the conditions in paragraph 5.1 above are met following adjustments shall be carried out.
(a) In the case of CVMr, the receiving bank may reduce the RC (but not the PFE
component) of the exposure amount of the derivative by the amount of cash
received if the positive mark-to-market value of the derivative conffact(s) has
not already been reduced by the same amount of CVMr under the reporting
requirements.
(b) In the case of CVMp, the posting bank may deduct the resulting receivable from
its Leverage Ratio exposure measure and instead include the CVMp in the
calculation of the derivative RC.
6 Bilateral Netting
6.I For purposes of the Leverage Ratio, a bilateral netting agreement is considered valid if the
following criteria are met:
a) The agreement is in writing.
b) The agreement creates a single legal obligation for all individual contracts covered
by the agreement and the bank would have a single claim or obligation to receive
or pay only the net amount of the sum of the positive and negative mark-to-market
values of the individual contracts covered by the agreement in the event that a
counterparty to the agreement, or a counterparty to whom the agreement has been
validly assigned, fails to comply with any obligation under the agreement due to
default, insolvency, bankruptcy, or similar circumstance.
c) The licensed bank has been given independent legal advice in writing to the effect
that in the event of a challenge in a court of law, including a challenge resulting


that in the event of a challenge in a court of law, including a challenge resulting
from default, insolvency, bankruptcy, or similar circumstance, the relevant court or
administrative authority would find the banks' exposure to be the net amount under:


(i) The law of the jurisdiction in which the counterparty is incorporated or the
equivalent location in the case ofnon-corporate entities, and ifa branch of
the counterparty is involved, then also under the law of the jurisdiction in
which the branch is located.
(ii) The law which governs the individual contracts covered by the agreement.
(iii) The law which governs the agreement.
d) The bank manages the transactions covered by the agreement on a net basis.
e) The bank maintains documentation adequate to support the netting of the contracts
covered by the agreement.
0 The agreement is not subject to a provision that permits the non-defaulting
counterparty to make only limited payment or no payment at all, to the defaulter or
the state of the defaulter, regardless of whether or not the defaulter is a net creditor
under the agreement.
L0


Reporting Formats for Leverage Ratio
Part I - Computation of Leverage Ratio
Part II - Ctation of E Measu - uom re re
362.1.0.0.0 Exposure Measure
36.2.1.1.0.0 On Balance Sheet Exposures
36.2.1.1.1.0 On-balance sheet Assets (excluding
derivatives and SFTs)
36.2.1.1.2.0 Assot amounts adjusted in deternrining Basel
III Tier I capital
36.2.1.2.0.0 Derivative Exposures
362.1.2.1.0 Replacement cost associated with all
derivatives transactions
362.1.2.2.0 Add.on amounts for PFE associated with all
derivatives transactions
36.2.1.2.3,0 Alpha 1.4 1.4
36.2.1.3.0.0 Securities Financing Transaction (SfT)
Exposures
36.2.1.3.1.0 Gross SFT assets
3,6.2.1.3.2.0 Counterparty credit risk exposure for SFT
assets where a bank aots as a principal
36.2.1.3.3.0 Agerrt transaction exposures
36.2.1.4.4.0 Other Off.Balance Sheet Exposures
36.2.1.4.1.0 Exposures with a 20%CCF
36.2.1.4.2.0 Exposures with a 50% CCF
36.2.1.4.3.0 Exposures wi& a 100% CCF
L1


MONETARY BOARD
CENTRAL BANK OF SRI LANKA
-$ February 2018 BANKING ACT DIRECTIONS
LOAN TO VALUE RATIOS FOR CREDIT FACILITIES GRANTED
IN RESPECT OF MOTOR VEHICLES
Issued under Sections 46(1) and 76(JX1) of the Banking Act, No. 30 of 1988, as amended.
The Monetary Board issues Directions as follows for the implementation of loan to value (LTV)
ratios in respect of credit facilities granted by licensed commercial banks (LCBs) and licensed
specialised banks (LSBs) for the purpose of purchase or utilisation of motor vehicles.
1. Empowerment 1.1 In terms of Sections 46(1) and 76(JX1) of the Banking Act, in order
under the
Banking Act to ensure the soundness of the banking system, the Monetary Board
is empowered to issue Directions to all or any LCB and LSB,
respectively, regarding the manner in which any aspect of the
business ofsuch banks is to be conducted.No.01 of2018
2. Maximum
LTV Ratio2.1 Commencing 01 January 2018, credit facilities granted by every
licensed bank for the purpose of purchase or utilisation of vehicles
shall not exceed the following percentages of the market value of
such vehicles.
(i) In respect of unregistered vehicles and registered vehicles which
have been used in Sri Lanka for less than one year after the first
registration;
Table I - Loan to Value Ratio
Vehicle Category Vehicle Class of
Department of Motor
TrafficElectric
VehiclesOther
Commercial
vehiclesC1, C, CE, D1, D, DE,
Gl, G, J90% 90%
Motor Cars, SUVs
and VansB (other than light
trucks & single cabs)90% s0%
Three wheelers B1 900 250
Any other vehicle A1, A, light trucks &
single cabs categorized
under B900 7004
Hybrid Motor Cars,
SUVs and VansB (other than light
lrucks & single cabs)70%


MONETARY BOARD
CENTRAL BANK OF SRI LANKA
8 Feb.uary 2018 BANKING ACT DIRECTIONS - No. 01 of 2018
(ii) 70 per cent in respect of registered vehicles which have been used
in Sri Lanka for more than one year after the first registration.
3.1 The limits in Direction 2 above will not be applicable to credit
facilities granted to any company engaged in tourism and/or
transportation for purchase of vehicle fleets to be utilized for their
core business operations, provided that such vehicles financed shall
not be transferred to any person or entity within one year from the
date of the first registration.
3.2 Licensed banks shall have internal limits and adopt adequate risk
management procedures in granting credit facilities for this category
of vehicles.3. Exemptions
from the
Maximum
LTV
4. Other Credit
Facilities for
Vehicles
5. Interpretations 5.1
5.24.1 A licensed bank shall not grant credit facilities for the purpose of
purchase or utilisation of motor vehicles, other than credit facilities
granted in accordance with Directions 2 and 3 above.
Credit facilities shall mean finance leases, hire purchase facilities and
all other credit facilities granted for the purpose of purchase or
utilisation of vehicles by end-users.
The value of the vehicle shall be the market value. Licensed banks
may use the following for the purpose of valuing vehicles:
D Brand new vehicles - value given by authorized agents
ii) Reconditioned vehicles - valuation considered at customs or
invoice value given by the dealer
iii) Registered vehicles - value given by a professional valuer
Licensed banks should ensure that the valuation is obtained at the
time of granting credit facilities and provides a true and fair value.
Fleet of vehicles referred to in Direction 3.1 shall mean two or more
vehicles.5.3
5.4


MONETARY BOARI)
CENTRAL BANK OF SRI LANKA
B February 2018 BANKING ACT DIRECTIONS _ No.01 of 2018
5.5 Company engaged in tourism referred to in Direction 3.1 shall mean
a company registered with the Sri Lanka Tourism Development
Authority or any other authority to provide services to tourism.
5.6A company engaged in transportation referred to in Direction 3.1
shall mean any business entity registered at any state authority for the
purpose of business of transportation of goods or passengers.
The following Directions are hereby revoked:
(i) Banking Act Directions No. 01 of 2017 on Loan to Value Ratios
for Credit Facilities in respect of Motor Vehicles.
(ii) Banking Act Directions No. 02 and No. 04 of 2017 on
Amendment to Directions on the Loan to Value Ratios for Credit
Facilities in Respect of Motor Vehicles.
fu-fur^,''.-l
Dr. Indrajit Coomaraswamy
Chairman of the Monetary Board and
Governor of the Central Bank of Sri Lanka6.Revocation of 6.1
previous
Directions


Ltr NIay 2018MONETARY BOARD
CENTRAL BANK OF SRI LANIKA
BANKING ACT DIRECTIONS No.02 of 2018
APPOINTMENT OF AGENTS OF LICENSED BANKS
In terms of the powers conferred by Sections 46(l) and 76(J)(1) of the Banking Act No. 30 of
1988, as amended, the Monetary Board has implemented the following Directions for the
appointment of agents of licensed commercial banks (LCBs) and licensed specialised banks
(LSBs) with the objectives of ensuring effective agent oversight, risk management and consumer
protection.
1. Empowerment In terms of Sections 46(l) and 76J(l) of the Banking Act,
in order to ensure the soundness of the banking system,
the Monetary Board is empowered to issue Directions to
all or any LCB and LSB, respectively, regarding the
manner in which any aspect of the business of such bank
or banks is to be conducted.
Interms of Sections 12(l)(a) and 76(D)(4) ofthe Banking
Act and Directions issued under Section 76J(l), the
Monetary Board approval is required for an LCB and an
LSB to open/close an agency or to effect a change in the
location of any existing place of business.
An LCB or an LSB will hereinafter be referred to as a
licensed bank.
Agent/sub-agent is an entity selected by a licensed bank
according to its internal policies and approved by the
Central Bank of Sri Lanka (CBSL) to provide limited
banking business on behalf of the licensed blnk as
permitted under these Directions.
Agent/sub-agent banking business is limited banking
business as permitted under Direction 6 of these
Directions, carried out by an agent/sub-agent on behalf of
a licensed bank.
Agent/sub-agent is referred to as'oagent" and agenVsub-2. Definitions1.1
t.2
2.1
2.2
2.3
2.4


24 May 2018MONETARY BOARI)
CENTRAL BAIIK OF SRI LANKA
BANKING ACT DIRECTIONS No.02 of 2018
3. Approval of CBSLagent banking business is referred to as "agent banking
business" unless otherwise specifically stated.
3.1 Before implementing agent banking business, a licensed
bank shall submit its request including the following
information to CBSL for evaluating the request for
approval.
(i) Approval of the Board of Directors of the licensed
bank for the implementation of agent banking
business.
(iD A confirmation from the Board of Directors of the
licensed bank that the following policies/procedures
on agent banking business are in place
(a) Board approved agent selection policy and
risk management framework;
(b) consumerprotectionmechanism;
(c) agent management, control and monitoring
mechanism; and
(d) operating procedures and manuals.
(iii) Certifications by the Chief Executive Officer that
the appointment of agents is in accordance with the
licensed bank's Board approved agent selection
policy and financial viability of the selected agents.
(iv) The details of agents (shall include at a minimum):
(a) rurme of the agent;
(b) proposed agent banking business;
(c) business registration number;
(d) registered address and contact details
(including postal address if different from the
registered address);
(e) core business activity;


MONETARY BOARD
CENTRAL BANK OF SRI LANKA
Zrt May 2018 BANKING ACT DIRECTIONS No.02 of 2018(0 other business activities;
(g) limits per agent/per customerlper day;
(h) details of the Board of
Directors/partners/owners of the agent
including names and National Identity Card
numbers (not applicable for sub agent); and
(D any other information as requested by CBSL.
The licensed bank is required to obtain prior approval of
CBSL for (i) any new appointment of agents (ii) any
discontinuation of approved agents (iii) additions to the
outlets of approved agents (iv) change of location of
approved agents (v) any amendments to approved agent
banking business. In exceptional circumstances based on
justifiable reasons, a licensed bank may temporarily
suspend any of its agents after applying for approval to
CBSL until such time the approval of CBSL is granted
for discontinuation.
A licensed bank shall submit its request for approval on
appointment of agents within the first ten working days
of a quarter.
The Board of Directors of a licensed bank shall:
(i) ensure the adherence to these Directions on both
agent/sub-agent banking business.
(ii) ensure necessary provisions are available'in the
agreement entered into with an agent by the licensed
bank and the agreement entered into with a sub-
agent by an agent for compliance with these
Directions.
(iii) formulate policies, procedures and guidelines on
conducting agent banking business;i.z
-r --,
4. Responsibilities of the 4.1
Licensed Bank


2h May 2018MONETARY BOARD
CENTRAL BANK OF SRI LANKA
BANKING ACT DIRECTIONS No.02 of 2018
(iv) ensure the agents have adequate resources and
expertise to perform the agent banking business;
(v) ensure that all risks associated with agent banking
business are identified, documented, mitigated,
managed and reviewed regularly;
(vi) establish systems for consumer protection and
complaint measures and relief mechanism for agent
banking business;
(vii) monitor the activities carried out by agents and
accepting the responsibility for all actions and
omissions of the licensed bank's agents while
performing duties on behalf of the licensed bank;
and
(viii) ensure adherence to Know Your Customer (KYC)
and Customer Due Diligence (CDD) rules, rules on
combatting money laundering and terrorist
financing activities and licensed bank's internal
rules, policies and procedures in this respect.
4.2 In addition, a licensed bank shall:
(i) make an explicit, informed and documented
decision on the use of agents for the provision of
agent banking business to its customers;
(ii) assess agents biannually on their viability and make
informed decisions on the continuation of agents;
(iii) provide agents with operational manuals as needed
and ensure proper provision of agent banking
business to customers; and
(iv) maintain an updated list of agents/database of agents
appointed with all relevant details including the
4


MONETARY BOARD
CENTRAL BANK OT'SRI LANKA
2rt May 2018 BANKING ACT DIRECTIONS No.02 of 2018
5. Risk Managementbelow at a minimal and publish the same in the web-
site of the licensed bank:
(a) name of the agent;
(b) business registration number;
(c) physical location/address ofthe agent;
(d) contact number of the agent; and
(e) agent banking business offered on behalfofthe
licensed bank.
licensed bank shall:
manage all relevant risks including credit risk,
operational risk, legal risk, liquidity risk, reputation
risk, technology risk and compliance risk;
have in place intemal controls, systems and
personnel to adequately monitor and control agent
banking business on an ongoing basis and adequate
oversight to address instances of non-compliance by
agents with the stipulated obligations;
assess the adequacy of controls by conducting
internal audits and through extemal audits;
ensure that agents have proper security control
policies to safeguard the information from both
internal and extemal threats;
ensure any sensitive data pertaining to customers is
not stored in any server/system/premises, other than
licensed bank's server/system/premises; sensitive
data includes but is not limited to customer name,
account details, credit/debit card details and all
other confidential data;
obtain CBSL approval in an exceptional
circumstance (applicable only for agents and not for(ii)5.1 The
(i)
(iii)
(iv)
(v)
(vi)


24 May 2018MONETARY BOARD
CENTRAL BAIIK OF SRI LANKA
BANKING ACT DIRECTIONS No.02 of20l8
Permitted Agent
Banking Business6.1sub-agents) with justifiable reasons for not ensuring
(v) above with a certification from a CBSL
approved auditor on Information Security
Management of the agent related to agent banking
business; further, obtain permission from the
customer before proceeding with the transaction
giving authority to save sensitive dataatthe selected
party;
(vii) undertake due assessment of credit worthiness of
agents and set limit structures (day limits, customer
limits, agent limits) for agent banking business
commensurate with this assessment; and
(viii) develop a business continuity plan to ensure
unintemrpted agent banking business to the
customers.
The agent shall provide the following banking
products/services only to the existing customers of the
licensed bank:
(i) deposit acceptance;
(ii) deposit withdrawal;
(iii) receiving loan repayments;
(iv) receiving credit card payments;
(v) facilitating utility bill payments;
(vi) account balance request;
(vii) fund transfer within the same licensed bank;
(viii) disbursement of inward remittances (Direction
9.1(vii) does not apply); and
(ix) any other activity as approved by CBSL.
Cash delivery activities handled by a third party on behalf
of the licensed bank where such third party meets the6.2


MONETARY BOARD
CENTRAL BANK OF SRI LANKA
7. Selection of Agents 7.1customers of the licensed bank to collect or deliver cash
shall be treated under Direction 6.1(ix). Such activities
shall be covered under a comprehensive insurance policy
and licensed bank shall be able to claim insurance on any
risk covering the entire process of cash
collectior/delivery and storage at third party vault.
Direction 9.1(vii) does not apply for such activities.
The licensed bank shall be responsible for determining
the suitability of agents prior to contracting agents, and
shall as a minimum consider the selection criteria in
Direction7.2.
The licensed bank shall conduct an assessment and due
diligence (Know-Your-Agent) including the following:
(i) demonstrate integrity and professional standards in
its business conduct;
(ii) possess adequate resources to support effective
implementation of anti-money laundering and
combating financing of terrorism measures, record
keeping, internal controls and consumer protection
measures;
(iii) ensure that the agents have not been involved in any
ille gallunethical activities ;
(iv) possess knowledge and competency to conduct high
quality agent banking business; and
(v) demonstrate the ability to control all risks related to
agent banking business.
The licensed bank shall select agents that have a business
registration, permanent business premises and an
established core business.
Agents may provide agent banking business to multiple7.2
7.3
7.4


2.4 May 2018MONETARY BOARI)
CENTRAL BANK OF'SRI LAIIKA
BANKING ACT DIRECTIONS No.02 of2018
7.5licensed banks and have separate contracts with each
licensed bank provided that the agents have the capacity
to manage transactions for different banks.
The licensed bank seeking to contract agents which have
already been contracted by another licensed bank to carry
out agent banking business shall assess the capacity of
agents to manage transactions for different banks. CBSL
may assess the concentration risk ofthe selected agents at
the time of approval.
The agreement with the agents shall specifically prohibit
them from charging any fee from customers for agent
banking business rendered by them on behalf of the
licensed bank.
CBSL will monitor compliance by the licensed bank with
these Directions and may:
(i) request for any information relevant to any agent
from the licensed bank at any time as may be
deemed necessary;
(ii) carry out inspection of the books and premises of
agents, if required;
(iiD direct the termination of the agent contract if
deemed necessulry;
(iv) direct the licensed bank to take any action or
measure against or on behalf of the agents as
appropriate; anilor
(v) direct the licensed bank to take any remedial action
arising from the conduct of agents as it may deem
fit.8. Oversight7.6
8.1


MONETARY BOARI)
CENTRAL BANK OF SRI LAIIKA
9. Consumer Protection 9.1 The licensed bank shall ensure the following:
(i) preservation of the confidentialrty of customer
information by the agent;
(ii) mechanisms zre in place for its customers to
appropriately identiff current list of agents and the
agent banking business provided through such
agents;
(iii) educating the public on product features and its
terms and conditions;
(iv) provision of agent banking business in a language
preferred by the customer out of three languages,
viz., Sinhala, Tamil and English;
(v) validation of customer data with the core banking
system data prior to execution of the transaction
where applicable;
(vi) customers are not unduly induced to buy products/
services of agents;
(vii) displaying the following at the premises of the
agent:
(a) the name of the licensed bank it represents and
the bank logo;
(b) a list of banking business offered by the agent;
(c) the dedicated telephone line through which
customers can contact the respbnsible
complaint handling officer at the licensed
bank; and
(d) the name, telephone numbers and location of
the licensed bank branch to which the agent
reports its agent banking business;
(viii) all transactions involving receipt and payment of


zh May 2018MONETARY BOARD
CENTRAL BANK OF' SRI LAIIKA
BANKING ACT DIRECTIONS No.02 of 2018
10. Complaint Measures
and Relief Mechanismcash to or from an account are encouraged to be on
real time; the customer shall be informed of the
time lag in case of off-line transactions;
(ix) issuance of a printed/digital receipt/short message
service for all transactions undertaken through
agents; and
(x) compliance with Direction 5 of Banking Act
Directions No. 08 of 2011 on Customer Charter of
licensed banks (Annex I).
10.1 The licensed bank shall establish a complaint measures
and relief mechanism in terms of Direction 6 of Banking
Act Directions No. 08 of 2011 on Customer Charter of
licensed banks (Annex II) and shall ensure proper
communication of this mechanism to customers.
10.2 Complaints should only be reported to and maintained at
the licensed bank and agents are not permitted to handle
any complaints on behalf of the licensed bank.
10.3 The licensed bank shall provide dedicated telephone lines
for their customers to lodge complaints. Customers can
also use this telephone line to veriff with the licensed
bank, the authenticity and identity of an agent, its
physical location and the validity of its agent banking
business.
10.4 The licensed bank shall ensure safeguarding the interest
of the customer, in executing agent banking business via
agents, to the extent of facilitating a reversal of an
executed transaction, if necessary, under reasonable
grounds.
1 1.1 The licensed bank shall prepare a report on agent banking
business quarterly as in Annex III.I l. CBSL Reporting
10


MONETARY BOARD
CENTRAL BANK OF SRI LANKA
2tt Mav 2018 BANKING ACT DIRECTIONS No.02 of 2018
ll.2 Such details shall be available to be reported to CBSL on
12. Compliance with the
Directionrequest at any time.
l2.l The licensed bank shall commence agent banking
business via CBSL approved agents within 6 months
from the date of approval. No agents are permitted to
commence agent banking business after 6 months from
the date of approval.
12.2 All licensed banks are required to comply with these
Directions on Appointment of Agents. Agents already
approved by CBSL shall comply within 6 months from
the implementation of these Directions and notify CBSL
on compliance.
12.3 Licensed banks currently engaged in cash delivery
arangements specified in Direction 6.2 above shall
obtain approval of CBSL under these Directions within 6
months. These cash delivery arrangements will not be
covered under outsourcing of business operations.
12.4 Licensed banks which appoint its group companies as
agents shall ensure adherence to these Directions by its
group companies.
fr|"^*t
Dr. Indrajit Coomaraswamy
Chairman of the Monetary Board and
Governor of the Central Bank of Sri Lankn
1l


Annex I
Extract from Banking Act Directions No. 08 of 2011 on Customer Charter of Licensed Banks
Protection from Agents
"Agents shall refrain from doing any of the following.
(a) Harassingcustomers.
(b) Using abusive debt collection practices.
(c) Disclosing customer infornation to others.
(d) Giving false or misleading information about productVservices.
(e) . Unduly influence customers or the general public to buy or get involved ifr the bank's
products/services.
(D Engage in getting any security documents signed butside the bank."
t2


Annex II
Extract from Banking Act Directions No. 08 of 20ll on Customer Charter of Licensed Banks
Complaint Measures and Relief
"The customers have the right to resolve their complaints with transparency and effectively. In this
regard, licensed banks should:
(a) implement a quick and effective resolution mechanism on disputes between customers and
banks by rectifying disputes quickly, handling complaints within a short period, directing to
take the complaints forward if the customer is still not satisfied and reversing any charges
that applied due to a mistake;
(b) have in place a written procedure for receiving complaints and steps to be taken to resolve
such complaints;
(c) acknowledge the receipt of any complaint in writing within a reasonably short period of time
and inform the complainants of the procedure that will be followed by the bank for the
resolution of the complaint and the contact details of the officer/officers handling the
complaint;
(d) facilitate receiving complaints verbally or in writing and the banks shall not insist that
complaints be necessarily made only in writing;
(e) establish a management information system regarding complaints and process of resolution
as part of the duties of risk management committee relating to operational risks; and
(g) advise the customers to seek affordable and efficient recourse through the Financial
Ombudsman or in Courts in the event the complaint is not resolved to their satisfaction."
t3


Annex III
J.
4.Report on Agent Banking Business carried out by a Licensed Bank
Name of the bank:
Details on operating agents/sub-agents as at the quarter endo Name
o Business registration number
o Physicallocation/address
o Contact number
o Agent banking business offered
Performance ReviewNo. of agents commenced agent
banking business within 6 months
of the date of CBSL
No. of agents failed to commence
agent banking business within 6
months of the date of CBSL
No. of agents remaining to be
commenced agent banking business
before CBSL aooroval
Type Transactions (durine the quarter)
No. of transactions Value (Rs.)
(Deoosit acceotance
() Deposit withdrawal
(i) Received loan repayments(iv) Received credit card payments
(v) Utilitv bill oavments(vi) Account balance inouiries(vii) Fund transfers (within same bank)
(viii) Disbursement of inward remittances
(ix) Other
- Cash delivery activities
- Any other (soecifu)
(Bank shall maintain performance review for each agent/sub-agent)
5. Problems encountered:
O Number of problems and specify the issues
(ii) Reason for the problem
(iii) Actions taken (specifu)
t4


05 June 2018+
MONETARY BOARI)
CENTRAL BANK OT SRI LANKA
BANKING ACT DIRECTIONS No.03 of2018
AMENDMENTS TO DIRECTIONS ON LOAN TO VALUE RATIOS FOR
CREDIT FACILITIES GRANTED IN RESPECT OF MOTOR YEHICLES
Banking Act Directions No. 1 of 2018 on Loan to Value ratios for credit facilities granted in
respect of motor vehicles are amended by replacing the following Directions.
3. Exemptions
from LTV ratio3.1 The limits in Direction 2 above shall not be applicable to credit
facilities granted:
(i) to any company engaged in tourism and/or transportation for
purchase of vehicle fleets to be utilized for their core business
operations, provided that such vehicles financed shall not be
transferred to any person or entity within one year from the date
of the first registration; and
(ii) for procurement of vehicles for Govemment Agencies under the
finance leasing method specified by the Ministry of Finance and
Mass Media.
3.2 Licensed banks shall have internal limits and adopt adequate risk
management procedures in granting such credit facilities.
qlrfr"ou'A*-1 ,
Dr. Indrajit Coomaraswamy
Chairman of the Monetary Board and
Governor of the Central Bonk of Sri Lanka


2lAugust 2018MONETARY BOARI)
CENTRAL BANK OF SRI LANKA
BANKING ACT DIRECTIONS No.04 of2018
FINANCIAL DERIVATIVE TRANSACTIONS FOR
LICENSED COMMERCIAL BANKS AND LICENSED SPECIALISED BANKS
The Monetary Board issues the following Directions on Financial Derivative Transactions for Licensed
Commercial Banks (LCBs) and Licensed Specialised Banks (LSBs).
1. Empowerment
under the
Banking Actl.l
2. Applicability 2.1
3. Commencement
of derivative
transactions
4. Board approved
policies and
procedures2.2
3.1
3.2
4.1In terms of Sections 46(1) and 76J(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 or any LCB and LSB, respectively, regarding the
manner in which any aspect of the business of such banks is to be conducted.
These Directions will cover derivative transactions in foreign currency of
LCBs and LSBs which are authorised to offer such derivative transactions in
terms of the Foreign Exchange Act of Sri Lanka. The LCBs and LSBs shall
hereinafter be referred to as Eligible Banks (EBs).
These Directions shall be applicable to the Domestic Banking Units (DBUs)
and Off-shore Banking Units (OBUs) of EBs.
LCBs which intend to engage in financial derivative transactions shall notify
its interest, prior to the commencement of the initial transaction, to the
Director of Bank Supervision (DBS) with a copy to the Director of
Intemational Operations Department of the Central Bank of Sri Lanka
(cBSL).
LSBs shall obtain the written approval of DBS to engage in each derivative
specified rn 5.2.
EBs shall have in place Board approved policies and procedures on
derivative transactions and risk management framework to identify, quantify
and evaluate the exposures, manage risk and monitor performances related to
derivative transactions.
EBs shall ensure that appropriate expertise and capacity building are in place
to engage in financial derivative transactions.4.2


2l August 20L8MONETARY BOARI)
CENTRAL BANK OF SRI LANKA
BANKING ACT DIRECTIONS No.04 of2018
5. General Terms
and Conditions5.1Derivatives transactions may be entered into for the following purposes:
a) End User (EU) Deals: Transactions for the purpose of hedging EBs own
assets and liabilities (other than the assigned capital and retained
earnings) and managing their own risk profile as may be necessary from
time to time, however, not for speculative purposes.
b) Non Market Maker (NMM) Deals: Transactions executed by EBs with
their customers, i.e., any party other than an EB or with another EB with
the intention of making a spread. In these transactions an EB shall not
take any market risk into its own books and shall cover the transaction on
the same day on a back-to-back basis with another EB in Sri Lanka or
with a foreign counterparty.
c) Derivative Market Maker (DMM) Deals: Transactions executed by
EBs with their customers or with another EB while taking the market risk
into its own books.
Derivatives permitted under these Directions are as follows:
a) Swaps
b) Options
c) Forward Rate Agreements
d) Forward Contracts
e) Swaptions
0 Such other instruments as may be specified by the Monetary Board from
time to time.
EBs shall ensure the following:
a) all derivatives offered to customers are based on valid underlying
transactions which include current account transactions and permitted
capital account transactions ;
b) the notional principal amount, including any leverage of the derivative
shall not exceed the outstanding amount of the underlying
transactiorvasset or liability or the underlying exposure;5.2
5.3


)-I August 2018MONETARY BOARI)
CENTRAL BANK OF SRI LANKA
BANKING ACT DIRTCTIONS No.04 of2018
5.4
5.5
5.6c) Directions 5.3 (a) and (b) above shall not be applicable for interbank
derivative transactions.
EBs shall use products listed in 5.2 above to enter in to back to back
transactions with a foreign counterpart.
EBs are permitted to hedge contingent exposures or such risks arising from
balance sheet exposures of their customers.
EBs may allow importers and exporters to hedge their exposure including a
contract based on estimated transaction value. The estimated transaction
value shall be determined based on their audited financials or by averaging
the preceding three contract values or immediately preceding contract value,
whichever is higher, subject to confirmation by an EB.
Parties may unwind/sell back a derivative partially or fully, if they consider
such a derivative is no longer required, as follows:
a) all derivative contracts once unwound are eligible to be rebooked,
subject to the terms specified in these Directions;
b) any customer who wishes to unwind a derivative contract before
maturity while the underlying transaction still exists may do so with the
marked-to-market loss charged to such customer;
c) a marked-to-market gain (financial gain) should not be paid to the
customer;
d) the rate benefit, if any, may be passed to the customer at the time of
rebooking.
The cost of a derivative transaction with non-residents shall be paid out of
repatriable funds and/or inward remittances through normal banking
channels.5.7
5.8


>l August 2018MONETARY BOARI)
CENTRAL BANK OF SRI LANKA
BANKING ACT DIRECTIONS No. 04 of 2018
6. Prohibited
Activities
7. International
Swap and
Derivative
Association
(rsDA)5.9 A11 derivatives entered in to by an EB under Directions on Financial
Derivative Products issued on 01 August 2009 (Ref: 331031001100291002)
and Directions to Authorized Dealers on Forward Contracts in Foreign
Currencies issued on the 11 March 2010 (Ref: 0610410212010) can be
continued till the maturity of the underlying transactions, adhering to the
previously issued Directions. The unwound derivative contracts entered
under previous Directions can be rebooked only under the terms of the new
Directions.
5.10 Contracts may be entered into with customers whose underlying transactions
are established with another authorised dealer provided documentary
evidence is furnished by the said authorised dealer on each transaction.
6.1 EBs shall not engage in facilitating derivative transactions on behalf of any
foreign counterpart with resident customers unless the resident customer has
obtained specific approval of the Head of the Department of Foreign
Exchange ofCBSL.
6.2 EBs shall not enter in to derivative transactions in respect of any foreign
currency exposures or risks arising from foreign currency deposits or
retained eamings, held overseas.
6.3 Derivatives involving making of an upfront payment other than option
premiums, in any currency by EB to the customer shall not be permitted.
EBs shall sign ISDA Master Agreement with the counterparty for
derivatives, unless otherwise both parties agree to refrain from signing
ISDA.
EBs shall obtain a written consent from the counterparty where it was agreed
to refrain from signing ISDA. It will not be necessary for EBs to obtain a
written consent for inter-bank foreign exchange Forwards and Swaps
transactions with a contractual maturity of one year or less.
EBs shall maintain transaction specific agreements and records.7.t
7.2
7.3


)_ I August 2018MONETARY BOARI)
CENTRAL BANK OF SRI LANKA
BANKING ACT DIRECTIONS No.04 of 2018
8. Customer
Awareness
9. Eligible
Currencies8.1
8.2
8.3
8.4
8.5
8.6EBs shall ensure that the customers clearly understand the risks of the
derivative transactions and that the customers have established sufficient
measures to monitor and manage the risks arising from the prospective
transactions entering into.
EBs shall provide adequate information on the transaction, especially with
regard to the conditions and clauses to be incorporated into the product
indicating the relevant benchmarks, fixing rates, strike prices and premium
as the case may be, and a detailed risk scenario analysis to ensure the highest
level of transparency.
EBs shall obtain a written confirmation from the customer prior to entering
into a derivative transaction that the customer has understood the nature of
the products and their inherent risks.
EBs shall obtain an undertaking in writing from customers that their total
value of the derivative transactions with all EBs do not exceed the exposure
or the value of underlying transactions.
EBs shall also satisfy themselves on a professional analysis, of the
institutional capacity and the overall suitability of the customer to engage in
the derivative products offered by EB prior to entering into such contracts.
In the case of small value foreign exchange Forwards and Swap transactions
with a contractual maturity of one year or less, EBs shall, at a minimum,
provide basic information and conditions pertaining to the transaction to the
customers. For this pu{pose, EBs shall intemally determine a threshold for
small value foreign exchange forwards and swap transactions considering
the risk appetite and trading volume of EBs.
EBs shall conduct derivative transactions in designated currenciesl as per the
request of the customer and in accordance with internal policies approved by
its Board of Directors.9.1
l- Designated currencies determined under the


its Board of Directors.9.1
l- Designated currencies determined under the
Orders issued in terms of the Banking Act,
Direction.
5Banking Business Scheme)
will be applicable for thisBanking (Off-shore
from time to time,


2 / August 2018MONETARY BOARI)
CENTRAL BANK OF SRI LANKA
BANKING ACT DIRECTIONS No.04 of2018
10. Tenure
11. Reference/
Valuation
Benchmark
12. Reporting
13. Definition10.1 EBs shall ensure that the date of maturity of the derivative contract shall
correspond to the maturity date of the underlying transaction and shall not,
under any circumstance, extend beyond the date of the underlying
transaction, and the maximum maturity period of a derivative transaction
shall not exceed ten (10) years.
11.1 The parties involved shall be free to use any benchmark with sufficient
transparency on mutual agreement for reference and valuation purposes.
l2.l EBs shall submit to the Intemational Operations Department of CBSL on a
monthly basis within 15 days from the end of the month, a statement of the
transactions undertaken within the month in the format attached in Annex I.
12.2 The above requirement shall not be applicable for foreign exchange
Forwards and Swap transactions with a contractual maturity of one year or
less. However, EBs shall maintain records relating to such transactions with
customers.
The following definitions shall be applicable for purposes of these Directions.
13.1 Derivative
A derivative is a financial instrument or a contract as defined in Sri Lanka
Accounting Standards.
13.2 Foreign Counterpart
A foreign counterpart shall mean:
a) A bank outside Sri Lanka
b) An intemationally recognised derivative exchange
13.3 Permitted Derivative Transactions
a) Swaps
A swap is a bilateral agreement to exchange cash flows at specified
intervals (payment dates) during the agreed-upon life of the transaction
(maturity or tenure). Entering into a swap typically does not require the


MONETARY BOARI)
2-l August 2018CENTRAL BANK OF SRI LANKA
BANKING ACT DIRECTIONS No.04 of2018
b)payment of a fee. Under this direction EBs are eligible to enter into
interest rate, cross-currency and commodity swaps.
Options
An option is an agreement that gives the buyer, who pays a fee
(premium), the right but not the obligation to buy or sell a specified
amount of an underlying asset at an agreed upon price (strike or exercise
price) on or until the expiration of the contract (expiry). A call option is
an option to buy the underlying and a put option is an option to sell the
underlying. Under this Direction EBs are eligible to issue options based
on an underlying interest rate, currency and commodity.
Forward Rate Agreements (FRA)
A forward rate agreement is an interest rate contract between two parties
that allows an entity to position itself in the interest rate market. An FRA
is a contract that calls for one party to make a fixed interest payment and
the other party to make an interest payment at arate to be determined at
the contract expiration based on a notional principal amount. On the
expiration date, the payments are net settled.
Forward Contract
In forward contracts, the contract holders are obligated to buy or sell the
currency/commodity at a specified price, at a specified quantity and on a
specified future date.
Swaptions
The option to enter into a swap. In exchange for an option premium, the
buyer gains the right but not the obligation to enter into a specified swap
agreement with the issuer on a specified future date. Under this direction
EBs are eligible to issue swaptions based on an underlying transaction
such as interest rate, cuffency and commodity.
FX Swaps
FX swap is a simultaneous purchase and sale or vice versa of identicalc)
d)
e)
0


LI August 2018MONETARY BOARI)
CENTRAL BANK OF SRI LANKA
BANKING ACT DIRECTIONS No. 04 of 2018
14. Revocation
15. Implementationamounts of one currency for another with two different value dates.
14.l The following Directions are hereby revoked:
a) Direction No. 06 of 2017 dated 29 November 2017 on Financial
Derivative Transactions for Licensed Commercial Banks and Licensed
Specialised Banks;
b) Directions on Financial Derivative Products issued on 01 August 2009,
Ref: 33/03/001100291002by the Controller of Exchange and the Director
of Intemational Operations; and
c) Directions to Authorized Dealers on Forward Sales and Purchases of
Foreign Exchange issued on 02 January 2013, Ref: 06/0410412013 by the
Controller of Exchange.
15.1 These Directions shall be effective from the date of the Directions.
Dr. Indrajit Coomaraswamy
Chairman of the Monetary Board and
Governor of the Central Bank of Sri Lanka


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l3August 2018MONETARY BOARI)
CENTRAL BANK OF SRI LAI\KA
BANKING ACT DIRECTIONS No.05 of2018
AMENDMENTS TO DIRECTIONS ON LOAN TO VALUE RATIOS FOR
CREDIT FACILITIES GRANTED IN RESPECT OF MOTOR YEHICLES
Banking Act Directions No. 3 of 2018 on Loan to Value ratios for credit facilities granted in
respect of motor vehicles are amended by replacing the following Directions.
3. Exemptions
from LTV ratio3.1 The limits in Direction 2 above shall not be applicable to credit
facilities granted:
(i) to any company engaged in tourism and/or transportation for
purchase of vehicle fleets to be utilized for their core business
operations, provided that such vehicles financed shall not be
transferred to any person or entity within one year from the date
of the first registration;
(ii) for procurement of vehicles for Government Agencies under the
finance leasing method specified by the Ministry of Finance and
Mass Media; and
(iii) for credit facilities granted for purchase of motorcycles by field
officers in the public service and teachers servicing in difficult
areas under the proposed concessionary leasing facility provided
by the Govemment.
3.2 Licensed banks shall have internal limits and adopt adequate risk
management procedures in granting such credit facilities.
flhs>"J\^!'\^-,
Dr. Indrajit Coomaraswamy
Chairman of the Monetary Board and
Governor of the Central Bank of Sri Lanko


28 September2018,ffi
CENTRAL BAITK OF SRI LAI\KA
BAI\IK ST'PERVISION DEPARTMENT
BAI\IKING ACT DIRECTIONS No.06 of2018
MEASURES TO CURTAIL IMPORT OF MOTOR YEHICLES
Issued under Sections a6(l) and 76(J) (1) of the Banking Act, No. 30 of 1988, as amended.
The Central Bank of Sri Lanka with a view to curtailing imports and the resultant adverse impact
on the exchange rate requires licensed commercial banks and licensed specialised banks to adopt
the following measures with effect from 0l October 2018.
1. The following will replace Directions 2.1 of the Banking Act Directions No. 0l of 2018 on
Loan to Value Ratios for Credit Facilities Granted in respect of Motor Vehicles.
Credit facilities granted by every licensed bank for the purpose of pruchase or utilisation of
motor vehicles shall not exceed the following percentages of the market value of such
vehicles until further notice.
(i) In respect of unregistered vehicles which have been used in Sri La$ka for less than
one yeax after the first regisfration;
Table I - Loan to Value Ratio
Commercial vehiclescl, c, cE, Dl, D, DE, Gl, G,
J9oo/o 90%
Motor Cars, SUVs and VansB (other than light trucks &
sinsle cabs)90% 50o/o
Three wheelers B1 90o/o 25o/o
Any other vehicleA1, A,lighttrucks & single
cabs categorized under B90o/o 70o/o
Hybrid Motor Cars, Vans and
SUVsB (other than light uucks &
sinsle cabs)50%
(ii) 70 per cent in respect of registered vehicles which have been used in Sri Lanka for
more than one year after the fust registration.
2. Refrain from opening of letters of credit for importation of motor vehicles under the scheme
for issuance of motor vehicle permits on concessionary terms issued by the Govemment of
N-.---=
Chief Executive Oficer/Senior Deptty Governor
of the Central Bank of Sri Lanka,Sri Lanka until further notice.


Schedule -A
Exclusion List of Motor Vehicles
HS
Hdg    HS Code     Description

87.01      Tractors (other than tractors of heading 87.09) (+)
  8701.10.00  Single axle tractors :
  8701.10.10  More than ten years old
  8701.10.90  Other
  8701.20.00  Road tractors for semi -trailers:
  8701.20.10  Not more than five years old
  8701.20.20  More than five years old
  8701.30.00  Track -laying tractors :
  8701.30.10  Not more than five years old
  8701.30.20
  More than five years old
   Other, of an engine power:
  8701.91  Not exceeding 18kW :
  8701.91.10  Agricultural tractors, not more than ten years old
  8701.91.20  Agricultural tractors, more than ten years old
  8701.91.30  Other, not more than ten years old
  8701.91.40  Other, more than ten years
old
  8701.92.00  Exceeding 18 kW but not exceeding 37 kW :
  8701.92.10  Agricultural tractors, not more than ten years old
  8701.92.20  Agricultural tractors, more than ten years old
  8701.92.30  Other, not more than ten years old
  8701.92.40  Other, more than ten years old
  8701.93.00  Exceeding 37 kW but not exceeding 75 kW :
  8701.93.10  Agricultural tractors, not more than ten years old
  8701.93.20  Agricultural tractors, more than ten years old
  8701.93.30  Other, not more than ten years old
  8701.93.40  Other, more than ten years old
  8701.94.00  Exceeding 75 kW but not exceeding 130 kW :
  8701.94.10  Agricultural tractors, not more than ten years old
  8701.94.20  Agricultural tractors, more than ten years old


8701.94.30  Other, not more than ten years old
  8701.94.40  Other, more than ten years old
  8701.95.00  Exceeding 130 kW :
  8701.95.10  Agricultural tractors, not more than ten years old
  8701.95.20  Agricultural tractors, more than ten years old
  8701.95.30  Other, not more than ten years old
  8701.95.40
  Other, more than ten years old

87.02
   Motor vehicles for the transport of ten or more
persons, including the driver
  8702.10.00
  With only compression - ignition internal combustion
piston engine (diesel or semi - diesel) :
   Motor vehicles for the transport of less than 13 persons
(adults) including the driver, not more than three and a
half years old:
  8702.10.12  Modified Vehicles of heading 87.03, not more than two
years old
  8702.10.13  Modified Vehicles of heading  87.03, more than two
years old
  8702.10.19
  Other
   Motor vehicles for the transport of less than 13 persons
(adults) including the driver, more than three and a half
years old:
  8702.10.21  Modified Vehicles of heading 87.03
  8702.10.29
  Other
   Motor vehicles for the transport of 13 or more persons
(adults) but less than 25 persons (adults) including the
driver, not more than five years old :
  8702.10.32  Modified Vehicles of heading 87.03, not more than two
years old
  8702.10.33  Modified Vehicles of heading 87.03, more than two
years old
  8702.10.39
  Other


Motor vehicles for the transport of 13 or more persons
(adults) but less than 25 persons (adults) including the
driver, more than five years old :
  8702.10.41  Modified Vehicles of heading 87.03
 8702.10.49  Other

   Motor vehicles for the transport of 25 or more persons
(adults) but less than 35 persons (adults) including the
driver, not more than ten years old :
  8702.10.53  Modified Vehicles of heading 87.03, not more than two
years old
  8702.10.54  Modified Vehicles of heading 87.03, more than two
years old
  8702.10.55  Other, not  more than five years old
  8702.10.59
  Other
   Motor vehicles for the transport of 25 or more persons
(adults) but less than 35 persons (adults) including the
driver, more than ten years old :
  8702.10.61  Modified Vehicles of heading 87.03
  8702.10.69
  Other
   Other, not  more than ten years old :
  8702.10.73  Modified Vehicles of heading 87.03, not more than  two
years old
  8702.10.74  Modified Vehicles of heading 87.03, more than  two
years old
  8702.10.75  Other, not more than five years old
  8702.10.79
  Other
   Other, more than ten years old :
  8702.10.81  Modified Vehicles of heading 87.03
  8702.10.89  Other
  8702.20.00
  With both compression - ignition internal combustion
piston engine (diesel or semi - diesel) and electric motor
as motors for propulsion
   Motor vehicles for the transport of less than 13 persons
(adults) including the driver, not more than three and a
half years old:


8702.20.11  Modified Vehicles of heading 87.03, not more than two
years old
  8702.20.12  Modified Vehicles of heading 87.03, more than two
years old
  8702.20.19
  Other
  Motor vehicles for the transport of less than 13 persons
(adults) including the driver, more than three and a half
years old:
  8702.20.21  Modified vehicles of heading 87.03
  8702.20.29
  Other
   Motor vehicles for the transport of 13 or more persons
(adults) but less than 25 persons (adults) including the
driver, not more than five years old :
  8702.20.31  Modified vehicles of heading 87.03, not more than two
years old
  8702.20.32  Modified vehicles of heading 87.03, more than two
years old
  8702.20.39
  Other
   Motor vehicles for the transport of 13 or more persons
(adults) but less than 25 persons (adults) including the
driver, more than five years old :
  8702.20.41  Modified vehicles of heading 87.03
  8702.20.49
  Other
   Motor vehicles for the transport of 25 or more persons
(adults) but less than 35 persons (adults) including the
driver, not more than ten years old :
  8702.20.51  Modified vehicles of heading 87.03, not more than two
years old
  8702.20.52  Modified vehicles of heading 87.03, more than two
years old
  8702.20.53  Other, not more than five years old
  8702.20.59
  Other


Motor vehicles for the transport of 25 or more persons
(adults) but less than 35 persons (adults) including the
driver, more than ten years old :
  8702.20.61  Modified vehicles of heading 87.03
  8702.20.69
  Other
   Other, not more than ten years old :
  8702.20.71  Modified vehicles of heading 87.03, not more than two
years old
  8702.20.72  Modified vehicles of heading 87.03,  more than two
years old
  8702.20.73  Other, not more than five years old
 8702.20.79  Other

   Other, more than ten years old :
  8702.20.81  Modified vehicles of heading 87.03
  8702.20.89  Other
  8702.30.00
  With both spark -ignition internal combustion
reciprocating piston engine and electric motor as
motors for propulsion:
   Motor vehicles for the transport of less than 13 persons
(adults) including the driver, not more than three and a
half years old:
  8702.30.11  Modified vehicles of heading 87.03, not more than two
years old
  8702.30.12  Modified vehicles of heading 87.03, more than two
years old
  8702.30.19
  Other
   Motor vehicles for the transport of less than 13 persons
(adults) including the driver, more than three and a half
years old:
  8702.30.21  Modified vehicles of heading 87.03
  8702.30.29
  Other
   Motor vehicles for the transport of 13 or more persons
(adults) but less than 25 persons (adults) including the
driver, not more than five years old :


8702.30.31  Modified vehicles of heading 87.03, not more than two
years old
  8702.30.32  Modified vehicles of heading 87.03, more than two
years old
  8702.30.39
  Other
   Motor vehicles for the transport of 13 or more persons
(adults) but less than 25 persons (adults) including the
driver, more than five years old :
  8702.30.41  Modified vehicles of heading 87.03
  8702.30.49
  Other
  Motor vehicles for the transport of 25 or more persons
(adults) but less than 35 persons (adults) including the
driver, not more than ten years old :
  8702.30.51  Modified vehicles of heading 87.03, not more than two
years old
  8702.30.52  Modified vehicles of heading 87.03, more than two
years old
  8702.30.53  Other, not more than five years old
  8702.30.59
  Other
   Motor vehicles for the transport of 25 or more persons
(adults) but less than 35 persons (adults) including the
driver, more than ten years old :
  8702.30.61  Modified vehicles of heading 87.03
  8702.30.69
  Other
   Other, not more than ten years old :
  8702.30.71  Modified vehicles of heading 87.03, not more than two
years old
  8702.30.72  Modified vehicles of heading 87.03, more than two
years old
  8702.30.73  Other, not more than five years old
  8702.30.79
  Other
   Other, more than ten years old :
  8702.30.81  Modified vehicles of heading 87.03