Regulatory Alerts2021-01-25 | Banking Act Direction No. 3 of 2021Amendments to Directions on Capital Requirements under Basel III for Licensed Commercial and Specialised Banks
The Central Bank of Sri Lanka issued Banking Act Directions No. 03 of 2021 to amend capital requirements under Basel III for licensed commercial and specialised banks. The revised Schedule I establishes a 10 percent risk weight for foreign government claims and qualifying residential mortgages that satisfy specific margin and valuation criteria, while assigning a 100 percent weight to non-qualifying performing claims. Commercial real estate exposures are explicitly excluded from the preferential residential category, and all adjustments apply to web-based regulatory returns for 2021.
ffi MONETARY BOARI) CENTRAL BANK OF SRI LANKA J{ January 20zt nlNxtNG lct DutnCtIOttS No.03 of 2021 AMENDMENTS TO DIRECTIONS ON CAPITAL REQUIREMENTS UNDER BASEL III FOR LICENSED COMMERCIAL BANKS AND LICENSED SPECIALISED BANKS Banking Act Directions No. 1 of 2016 on Capital Requirements under Basel III for licensed commercial banks and licensed specialised banks are hereby amended bi replacing the following Directions. SCHEDULE I Appendix IV PART III(A) _ COMPUTATTON OF RISK WEIGHTED AMOUNT FOR CREDIT RISK Web Based Return Code Assets Risk Weight (o/"l 20.3.r.1.r.2 Foreign Claims on Central Government All foreign claims on Government of Sri Lanka (The revised risk weight is applicable for the year 2021 only) 10 20.3.1.9.0.0 Claims Secured by Residential Property The amount must agree with the sum of the claims secured by residential property that qualify for regulatory capital purposes and claims secured by residential property that do not qualify for regulatory capital purposes. (WBRC 20.3.1.9. 1.0 to 20.3.1.9.2.0) The exposures secured by mortgages on commercial real estates shall be excluded from here. 20.3.1.9.1.0 Claims that Qualiff for Regulatory Capital Purposes a) Subjdct to conditions below, residential housing loans fully secured by a primary mortgage over such residential property that is or will be occupied by the borrower, or rented. b) The claims should strictly meet the following qualiffing criteria to be able to use the preferential risk weight: o A margin of at least 25oh onthe forced sale value of the property based on the latest valuation report; 35
89 January202l MONETARY BOARD CENTRAL BANK OF SRI LANKA BANKING ACT DIRECTIONS No.03 of202l o Valuation of properfy: valuation of property is carried out by an external independent valuer or current intemal assessment of the value of the properties subject to the conditions stated in the Directions on Classtfication of Loans and Advances, Income Recognition and Provisioning issued under Banking Act. c) Mortgages other than primary mortgages will qualifi, for the same risk weight, subject to the above conditions, if: . The mortgage is with the same bank o The purpose of the loan is for residential purposes. 20.3.1.9.2.0 Claims that do not Qualiff for Regulatory Capital Purposes Performing claims that do not meet the criteria given above. 100 f. W D Lakshman Chairman of the Monetary Board and Governor of the Central Bank of Sri Lanka l