Off-Shore Banking Business of Licensed Commercial Banks

14 Jwe2024
CENTRAL BANK OF SRI LANKA
BA.NKING ACT DIRECTIONS No.02 of2024 OFF'.SHORE BANKING BUSINESS OF I,ICENSED COMMERCIAL BANKS In terms of the Banking (Amendment) Act, No. 24 of 2024,the demarcatioi of Domestic Banking Unit and Off-shore Banking Unit is eliminated, and off-shore banking business is identified as a permissible activity thatalicensed Commercial Bank (LCB) may carry out. In view of the above, the Central Bank of Sri Lanka (CBSL) hereby issues these Directions on Off-shore Banking Business of LCBs, with a view to facilitating the conduct of off-shore banking business with the implementation of the Banking (Amendment) Act, No.24 of 2024.

1. Empowerment 1.1 In terms of Section a6(1) of the Banking Act No. 30 of 1988, as
   amended, the CBSL may issue Directions to LCBs, regarding the manner in which any aspect of the business of such bank or banks is to be conducted.

2. Authorised
   Businesses under
   Off-shore
   Banking
   Business
   2.1 In terms of Section 6 (b) and item (aa) of the Schedule II of the
   Banking Act No. 30 of 1988, as amended, an LCB is permitted to conduct off-shore banking business. An LCB shall carry on off-shore banking business only in designated foreign currencies. An LCB may subject to these Directions, and such otheg terrns and conditions, conduct all or any of the following off-shore banking business:
   (a) accept savings, time and demand deposits in any designated foreign currency, provided that, in the case of time deposits the value of such deposits shall not be less than 10,000.00 United States dollars or its equivalent in any other designated foreigu curency or such higher amount as maybe determined by CBSL; (b) borrowings; 2.2 2.3

3. Eligible
   Customers for the Purpose of carrying on Off￾shore Banking Business

4. Transactions
   Permitted Under
   Off-shore
   Banking Business
   (c) extend accommodations; and
   (d) engage in any other transaction authorised by CBSL.
   2.4 [n accepting any contingent liability under 2.3 (c) above, an LCB
   shall engage only in the following transactions:
   (a) establish, open or advise letters of credit; (b) issue or renew guarantees, indemnities or similar undertakings; and (c) acceptances.
   3.1 An LCB may, subject to these Directions, engage in off-shore
   banking business specified in Direction 2 with any one or more of the following:
   (a) a non-resident, subject to Direction 5.1; (b) GBSL; (c) an LCB; (d) a BOI Company, subject to Direction 5.1; (e) any resident, being an exporter of goods and services from Sri Lanka, or any resident, being a local supplier of imported accessories to such exporter and is settled in foreign currency by such exporter, with the prior approval of CBSL on a case￾by-case basis; and (f) any other resident approved by CBSL in the interest of the national economy, subject to such conditions as CBSL may impose. Funds from an account maintained for the purpose of off-shore banking business, shall not be withdrawable by cheque. An account maintained by a customer as per Direction 3.1 shall only be:
   (a) credited with inward remittances; and (b)lcredited or debited; as the case may be with transactions permitted under the provisions of Foreign Exchange Act, No. 12 of 2017,with respect to off-shore banking business. 4.t 4.2

5. Granting of
   Accommodation under Off-shore
   Banking Business

6. Maintenance
   Records of 6.1

7. Other
   Requirements

8. Interpretations 8.1
   5.1 An LCB shall ensure to:
   (a) source foreign currency to grant accommodation under off￾shore banking business shall not exert undue pressure to the domestic foreign exchange market; (b) grant accommodation to eligible customers where LCB is satisfied that the customer has the capacity to repay such accommodation in a designated foreign crrrency; (c) implement prudent policies and procedures for granting of accommodation and timely recovery of such accommodation; and (d) report to CBSL the details of accommodation granted under off-shore banking business on a quarterly basis, as per the reporting format given at Annexure I. 6.2 Every LCB shall have appropriate procedures to identifu the accounts that are maintained for the purpose of off-shore banking business. Every LCB shall duly maintain records, management information and other documents in relation to off-shore banking business.
   7.1 An LCB may maintain equity including earnings and retained
   profits of off-shore banking business in designated foreign currency, subject to adherence with the relevant regulatory and legal requirements. For the purpose ofthese Directions:
   (a) ooOff-shore Banking Business" shall have the same meaning as given in section 86 ofthe Banking Act, No. 30 of 1988 (As amended). (b) "Off-shore Banking Business" means the provision ofbanking business by a LCB in any designated foreign currency to eligible customers as determined by CBSL, from time to time. (c) "BOI Company" means a company with which an agreement has been entered into by the Board of Investments of Sri Lanka under Section 17 of the Board of Investment of Sri

9. Discontinuation
   of Regulatory
   Reporting
   Requirements l0.Effective Date
   LankA Law No. 04 of 1978, as amended, and which have been granted approval to transact business under oflshore banking business. (d) "Residenf'and oNon-resident" shall have the same meaning as Section 86 of the Banking Act, No. 30 of 1988, as amended. (e) "Designated Foreign Currencies" rieans the foreign currencies that are set out in the Banking (Off-shore Banking) Order No. 0 1 of 2024 dated I 5.06 .2024 and any subsequent amendments, thereto.
   9.1 From the effective date of these Directions, the reporting
   requirements specified' in Schedule I of these Directions, are hereby revoked.
   10.1 These Directions shall be effective from the appointed date ofthe
   Banking (Amendment) Act, No 24 of 2024,on15.06.2024. /.--> Dr. P Nandalal Weerasinghe t/ Chairman of the Governing Board and Governor of the Central Bankof Sri Lanka

Details of Accomodation Granted Under Off-shore Banking Business rs rt ..,......

Schedule I: Discontinuations of Finnet Returns
BSD-MF-O1-BF: Balance
Sheet
Balance Sheet - Foreign Currency Banking Unit (FCBU) Operations BSD-MF-02-PF: Profit & Loss Profit & Loss- Foreign Currency Banking Unit(FCBU) Operations BSD-MF-04-LF: Statutory Liquid Asset Ratio Statutory Liquid Asset Ratio-Foreign Currency Banking Unit (FCBU) Operations BSD-AF-01-BF: Balance Sheet Balance Sheet - Foreign Currency Banking Unit (FCBU) Operations BSD-AF-02-PF: Profit & Loss Profit & Loss- Foreign Currency Banking Unit @CBU) Operations