Regulatory Alerts2019-07-18 | Explanatory Note No. 3 of 2019Interpretations for Banking Act Directions No. 01 of 2016 on Capital Requirements under Basel III for Licensed Commercial Banks and Licensed Specialised Banks
The Central Bank of Sri Lanka's Bank Supervision Department issued Explanatory Note No. 03 of 2019 to provide interpretations for Banking Act Directions No. 01 of 2016, establishing a consistent approach for measuring Capital and Risk Weighted Assets (RWA) under Basel III following the adoption of SLFRS 9. It specifies that 100% of Stage 1 and 50% of Stage 2 impairment under SLFRS are eligible for Tier 2 capital, up to 1.25% of RWA, and details how to apply risk weights for Non-Performing Assets (NPA) based on impairment levels and asset type. Furthermore, licensed banks must deduct SLFRS-based impairment from foreign claims on Sri Lanka Government securities before applying risk weights for Basel III capital charge.
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