Sri Lanka to receive $150mn from World Bank to strengthen financial sector

The Cabinet of Ministers has green-lighted a proposal seeking to enter into necessary agreements with the World Bank to secure financing under the Sri Lanka Financial Sector Safety Net Strengthening Project.

The proposal was tabled by President Ranil Wickremesinghe, in his capacity as the Minister of Finance, Economic Stabilization and National Policies, at the Cabinet meeting held on Tuesday (Dec.05).
 
The project was designed to boost the financial and institutional capacity of the Sri Lanka Deposit Insurance Scheme (SLDIS), which is managed by the Central Bank of Sri Lanka.

The financing will help boost reserves of SLDIS which could be used towards the payout to insured depositors of banks and licensed finance companies.

In parallel, the project will support institutional strengthening of the SLDIS in line with international good practices for effective deposit insurance schemes.

On April 24, 2023, the Cabinet of Ministers gave the nod to implement the financial sector safety net strengthening project under World Bank funds.

Later, on November 09, the World Bank’s Board of Executive Directors approved USD 150 million in financing for Sri Lanka to strengthen the resilience of its financial sector.

The SLDIS was established in 2010 and has conducted several payouts for failed licensed finance companies in recent years. At present, the SLDIS guarantees the deposits of households and enterprises up to LKR 1,100,000, which covers more than 90% of deposit accounts in Sri Lanka.

The legal framework for deposit insurance in Sri Lanka was upgraded earlier this year through the approval of Banking Special Provisions Act by Parliament. The World Bank earlier said SLDIS should now be strengthened institutionally and financially for the deposit insurance scheme to be able to effectively fulfill its legal mandate of protecting the financial sector stability.

Addressing the Cabinet media briefing earlier today, Cabinet spokesman Minister Bandula Gunawardena said the World Bank’s financing for the project will ensure a strong deposit insurance system, enhanced supervision. He said it will safeguard public confidence in the financial system.