Regulatory Alerts2020-12-31 | Banking Act Direction No. 13 of 2020Amendments to the Regulatory Framework on Valuation of Immovable Properties of Licensed Commercial and Specialised Banks
The Monetary Board of the Central Bank of Sri Lanka issued Banking Act Directions No. 13 of 2020 to amend the regulatory framework governing how licensed commercial and specialised banks value immovable property collateral. The updated directions mandate strict eligibility criteria and continuous professional development for panel valuers, establish clear financial thresholds distinguishing internal from external valuation reports based on loan performance, and specify valuation frequencies ranging from four to five years depending on property type. Furthermore, the amendments permit banks to recognize revaluation gains in Tier 2 capital once every three years while formally revoking prior valuation directives.
31December2020 MONETARYBOARI) CENTRAL BAI\K OF'SRI LAI\KA BANKING ACT DIRECTIONS No.13 of2020 AMEITDMENTS TO REGTILATORY FRAMEWORK ON VALUATION OF' IMMOVABLE PROPERTIES OF LICENSED COMMERCIAL BANKS AI\D LICENSEI) SPECIALISED BATIKS In the exercise of the powers conferred by Sections a6(l) and 76(JXl) ofthe Banking Act, No. 30 of 1988, the Monetary Board hereby issues the following amendments to Banking Act Directions No. 01 of 2014 on the Regulatory Framework on Valuation of Immovable Properties of Licensed Commercial Banks and Licensed Specialised Banks, hereinafter referred to as licensed banks. Accordingly, the following Directions of the Banking Act Directions No. 01 of 2014 on the Regulatory Framework on Valuation of Immovable Property of licensed banks shall be replaced as follows: 5. Eligibility 5.1. Every licensed bank shall ensure that: Criteria for Valuers a) eligibility criteria for valuers are set out as follows. A. A member of the Institute of valuers of sri Lanka (IvsL) who shall be: i. A Fellowmember; or ii. A Professional Associate member with 5 years of experience in such grade ofmembership. For the pqpose of determining number of years of experience in the grade of professional Associate Membership, the transitional provisions stated in the Section 24 of the IVSL (Amendment) Act, No. 9 of 2019, shall be applicable. B. A chartered valuation surveyor of the Royal Institution of chartered surveyors (Rrcs) of the united Kingdom who shall be: i. A Fellowmember; or ii. other members with at least 5 years of experience in such grade of membership. )
31December2020 MONETARYBOARI) CENTRAL BANK OF SRI LANKA BAI\IKING ACT DIRECTIONS No. 13 of 2020 b) valuers selected for the panel of valuers of the licensed banks as per the qualifications set out in Direction 5.1 a) above shall acquire continuous Professional Development as approved/recommended by the respective professional body; intemal valuation of immovable property is undertaken by valuers who satisft the eligibility criteria set out in Direction 5.1 a) above; and valuers who maintain highest levels of professional conduct, ethics and integrity in carrying out valuations of immovable property of licensed banks are included in the panel of valuers. In respect of immovable property obtained/to be obtained as collaterals against all performing loans and advances, banks shall establish an appropriate threshold for intemal and external valuation uN per the bank's policy. In respect of non-performing loans, where the capital outstanding amount is less than Rs. 10,000,000 or 0.1%o of the bank's capital base, whichever is less, an intemal valuation report may be obtained. Licensed banks shall obtain an external valuation report in the case of obtaining valuation for a foreclosed properly where the capital outstanding amount is over Rs. 5,000,000 or 0.1% of the bank's capital base, whichever is less. 7.1 rhe frequency of valuation as referred to in Direction2.2 (f) of the cited Direction shall be as follows: a) valuation of immovable property obtained as collateral against loans and advances which are non-performing shall be made at the frequency as follows for any regulatory pu{pose. i. In respect of credit facilities granted against residential property which is occupied by the borrower for residential c) d) 6. Threshold for internal and extemal valuation reports 7. X'requency of Valuation 6.1 6.2 6.3 )
ffi MONETARYBO 3l December202O ARI) CENTRAL BAI\K OF SRI LAIIKA BA}IKING ACT DIRECTIONS No.13 of2020 pulposes: a report that is not more than five years old. ii. All other credit facilities: a report that is not more than four years old. Revaluation of immovable properly as qeferred to in Directions 3.1 b) and c) of the cited Direction on Valuation of Immovable Properties shall be made in line with the intemal policies approved by Board of Directors or depending on any significant and volatile changes in fair value of such immovable property are experienced. However, such gains can only be included in Tier 2 capital once in three years. Valuation of immovable property obtained as collateral against loans and advances which are performing, shall be made at the time of initial granting and at the time of any subsequent enhancement of credit facilities. Banking Act Directions No. 07 of 2019 on Amendments to Regulatory Framework on valuation of Immovable Properties of Licensed Commercial Banks and Licensed Specialised Banks are hereby revoked. Chairman ofthe Monetary Board and Governor of the Central Bank of Sri Lanka b) c) 9. Revocation of Directions )