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Sri Lanka tightens bank dividends, profit repatriation to preserve capital

ECONOMYNEXT – Sri Lanka’s central bank has ordered banks not to declare dividends and foreign banks not to repatriate profits until 2022 financial accounts are finalized and audited as an economic crisis impacts banks.

“Every licensed bank incorporated or established in Sri Lanka shall defer payment of cash dividends until the financial statements/interim for the year 2022 are finalized and audited by its External Auditor,” the direction issued by the regulator said.

“Every licensed bank incorporated outside Sri Lanka shall defer repatriation of profits not already declared for financial years 2021 and 2022 until the financial statements for the year 2022 are finalized and audited by the External Auditor.”

Banks were also asked not to buy back shares, to use “extreme due diligence and prudence” in capital expenditure and to avoid non-urgent spending.

The central bank said it wanted to ensure that banks had “appropriate levels of liquidity and capital buffers” in the current economic conditions.

Sri Lanka has kept interest low for two years by printing money triggering a monetary meltdown with a soft-pegged rupee falling steeply amid forex shortages.

As interest rates correct banks are facing mark to market losses, possible restructuring losses on sovereign bond holders and bad loans as consumption as the economy and consumption is slowed to save the soft-pegged rupee from collapsing further. (Colombo/May08/2022)

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