Amendments to Basel III Capital Requirements Directions for Licensed Commercial and Specialised Banks

CENTRAL BANK OF SRI LANKA 19 July 2024 BANKING ACT DIRECTIONS No. 04 of 2024

AMENDMENTS TO DIRECTIONS ON CAPITAL REQUIREMENTS UNDER BASEL III FOR LICENSED COMMERCIAL BANKS AND LICENSED SPECIALISED BANKS

Banking Act Directions No. 01 of 2016 on Capital Requirements under Basel III for Licensed Commercial Banks and Licensed Specialised Banks are hereby amended as follows:

1. Appendix I and Appendix IV, Part III (A) Computation of Risk Weighted Amount for Credit Risk 1.1 New web-based return code 20.3.1.8.4.0 - The portion of exposures guaranteed by the National Credit Guarantee Institution Limited, is inserted immediately after web-based return code 20.3.1.8.3.3 as given in Annex I hereto.

2. Appendix III, Part II(A) Computation of Total Regulatory Capital 2.1 The Indicative List of Financial Institutions is replaced with the following. Indicative List of Financial Institutions i) Licensed commercial banks and licensed specialised banks licensed under the Banking Act No. 30 of 1988 (as amended) ii) Licensed finance companies licensed under the Finance Business Act No. 42 of 2011 iii) Specialised leasing companies registered under the Finance Leasing Act No. 56 of 2000 iv) Microfinance institutions registered under the Microfinance Act No. 6 of 2016 v) Insurance companies, their agents and insurance brokers registered under the Insurance Industry Act No. 43 of 2000 (as amended) vi) Primary dealers licensed under the Local Treasury Bills Ordinance No. 8 of 1923 (as amended) and Registered Stocks and Securities Ordinance No. 7 of 1937 (as amended)

vii) Merchant/investment banks and venture capital companies incorporated under the Companies Act No. 7 of 2007 viii) Registered market intermediaries, including margin providers, investment managers, underwriters, securities clearing houses, credit rating agencies, stockbrokers/dealer companies and managing companies of unit trust registered under the Securities and Exchange Commission of Sri Lanka Act No. 36 of 1987 (as amended) ix) National Credit Guarantee Institution Limited x) Any other financial subsidiaries/institutions established in or outside Sri Lanka

3. Appendix IV, Part III (C) Guideline on Recognising Exposures under Credit Risk Mitigation 3.1 Web-based return code 20.3.3.2.2.0 - Guarantees, Item (4) - Risk Weights, is replaced with the following. Risk Weights: a) The protected portion is assigned the risk weight of the protection provider. b) A zero risk weight will be applied to that portion of loans guaranteed by GOSL and CBSL. c) The portion of exposures guaranteed by the Sri Lanka Export Credit Insurance Corporation (SLECIC) and other guarantees acceptable to CBSL will receive a 50% risk weight. d) The portion of exposures guaranteed by the National Credit Guarantee Institution Limited (NCGIL) will receive a 20% risk weight. e) The uncovered portion of the exposure is assigned the risk weight of the underlying counterpart.

(Signature) Dr. P Nandalal Weerasinghe Chairman of the Governing Board and Governor of the Central Bank of Sri Lanka

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Annex I

Appendix I and Appendix IV
Part III – Computation of Risk Weighted Amount for Credit Risk
Web-based Return Code	Assets	Risk weight %
20.3.1.8.4.0	The portion of exposures guaranteed by National Credit Guarantee Institution Limited	20