BANKING SECTOR IN SRI LANKA....

BANKING SECTOR IN SRI LANKA.... 

The banking sector continued to expand duting the recent years both glibally and domeatically. Banks paly a critical role within Sri Lankan financial system. They are engaged in provision of many services to entire economy.

The banking sector consists of 33 banks. Out of which 26 banks are Licensed Commercial Banks (LSBs) and it consist of 2 state banks, 11 domeatic private banks and 13 forign banks. Other part of banking sector is 7 Licensed special Banks (LCBs) and it consist of 6 state banks and 1 private bank.

Main distinctions of LCB and LSB are;

• Only LCBs are permitted to  provide current account facilities like cheque and overdraft facilities.
• LSBs are permitted to carry out only limited forign exchange transactions.

Licensed Commercial Banks (LSBs)

LSB is a banking institution issued witha license of Central Bank of Sri Lanka. They are permitted;

• To maintain current accounts for customers.
• To transfer money by cheque and withdrawn on demand
• Tomaintain saving accounts. 

The 26 licensed Commercial Banks which currently operate through a total of more than 6180 branches and over 4655 Automated Teller Machines (ATMs) in the country. The banks are regulated and supervised by the Central Bank of Sri Lanka under banking Act No. 30 of 1988, the Monetary Law Act No. 58 of 1949,the Companies Act No. 7 of 2007.

Licensed Special Banks (LCBs)

LCBs are financial institutions which are obtain license from Central Bank to conduct specialized banking business under the Banking Act.

• LSBs are not permitted to accept demand deposits from th public. 
• Not permitted to maintain current  accounts for customers.
• Not permitted to deal in forign currency.

But they are authorized to accept savings and time deposits. At  present there are 7 specialized banks operating with 696 banking outlets and 376 ATMs in the country.

The systemic importance of the LSB sector is relatively low in comparison to the LCBs, both in terms of size and their impact on the financial system, as it does not play a major intermediary role in the payment cycle.

 

Off balance sheet exposure is important when considering business expansion of the banking sector. It represented by the graph besides. Other business expansion areas from outreach, assets, liabilities. Among these aspects banking sector has expansioned its business.

This is the composition of total assets of the banking sector in June 2018 as per the area,business expansion.






Risks of banking sector

• Credit risk - risk weighted assets considered for credit risk in the capital adequacy computation increased during the year. It is due to the expansion of loan portfolios. Under that there are 3 aspects named; 

1. Market risk          
2. Equity prises             
3. Exchange rates

Non performing loans increasing is a main risk.

• Liquidity risk -  Despite the growth in credit during 2018, banking sector operated with an adequacy level of liquidity. LSBs and LCBs are required to maintain a minimum Statutory Liquid Assets Ratio of 20per cent.

Resources of the banking sector

• Profitability
• Capital