The BankInsight

Banking Sector The banking sector in Sri Lanka, which comprises Licensed Commercial Banks (LCBs) and Licensed Specialized banks (LSBs), dominates the financial system and accounts for the highest share of the total assets in the financial system. Banks play a critical role within the Sri Lankan financial system, as they are engaged in provision of liquidity to the entire economy, while transforming the risk characteristics of assets. Banks also engaged in providing payment services, thereby facilitating all entities to carry out their financial transactions. On the other hand, banks can create vulnerabilities of systemic nature, partly due to a mismatch in maturity of assets and liabilities and their interconnections. Therefore, the soundness of banks is important, as it contributes towards maintaining confidence in the financial system, and any failure may have the potential to impact on activities of all other financial and non-financial entities, and finally the economy.

Overview The Central Bank of Sri Lanka (CBSL) is the apex institution in the financial sector in Sri Lanka. It was established in 1950 under the Monetary Law Act No. 58 of 1949 (MLA) as a semi-autonomous body and is governed by a five member Monetary Board. The CBSL seeks to achieve and maintain two core objectives to maintain a healthy and stable economic and financial system while maximizing resource utilization effectively. These objectives are:       1.    The maintaining of economic and price stability       2.    The maintaining of financial system stability The MLA has also granted the CBSL sole authority to issue currency notes and coins to the public. Therefore, the Bank is responsible for currency issuance and management. The CBSL is adviser on economic affairs and Banker to the Government of Sri Lanka (GoSL). As agent to GOSL the CBSL is tasked with managing the Employees’ Provident Fund, managing the country’s public debt, providing exchange control services and