The Island:
Mandatory listing of banks, finance companies in 2011
Central Bank Governor Ajith Nivard Cabraal says none of the registered and licensed financial institutions would be allowed to fail and that the Central Bank would continue to vigilantly monitor and regulate these banks and non-bank finance and leasing companies to ensure that they are stable.
Cabraal made these comments to journalists yesterday after a Central Bank advertisement in the print media caused some anxiety among the public.
The advertisement was a Central Bank notice that listed all licensed and registered commercial banks, specialised banks and finance companies that were authorised to accept public deposits and were regulated by the Central Bank. It cautioned the public about depositing their money in non-registered finance companies. It also said the Central Bank would not guarantee any deposits placed with authorised institutions and this was the cause of the anxiety.
But Cabraal said the regulation and monitoring of registered and licensed financial institutions would continue but this did not mean that the Central Bank would guarantee all deposits. “If there is a problem in a bank we would intervene to restore normalcy, we would not let a single bank fail,” he said.
Last year Seylan Bank PLC was on the verge of collapse but the Central Bank intervened to restore normalcy in the bank and public confidence in the bank.
Cabraal said banks are regularly monitored to ensure they are financially strong.
The Central Bank recently launched a deposit insurance scheme that would give public confidence a further boost.
The Central Bank has also issued a mandatory requirement for all banks and registered finance companies and leasing companies to list on the Colombo Stock Exchange which would further increase transparency and regulation. Licensed banks have until the end of 2011 to list on the Colombo Stock Exchange while non-bank financial institutions have until June 2011.
The deposit insurance scheme would require all registered banks and finance companies to make mandatory contributions ranging from 0.1 to .15 percent of deposits. The fund has already received Rs. 1.1 billion from the Central Bank’s reserves.
The deposit insurance scheme, which came into force early this month, would cover all deposits up to a maximum of Rs. 200,000. While registered banks and finance companies are expected to make their contributions on a monthly or quarterly basis from today, depositors would be entitled to benefits only after January 01, 2012.
“We need time to allow the fund to grow so this is why we have said depositors would be able to make a claim after this date. As time goes on, we would be able to increase the fund and the maximum cover could be revised from Rs. 200,000,” Central Bank Governor Ajith Nivard Cabraal told journalists early October.
He said the possible balance of the fund by then was not estimated but said it would be significant.
“Had we implemented such a scheme 20 to 25 years ago we would have had a significant balance which could have deposits up to 100 percent. A fund of this kind needs time to grow and this is why we are making the initial contribution of Rs. 1.1 billion,” Cabraal said.