Discussions in progress - Central Bank | Sunday Observer
Financial sector consolidation

Discussions in progress - Central Bank

21 February, 2021

Discussions between certain banks and financial sector institutions are in progress under the Central Bank’s banking and financial sector consolidation program aimed at strengthening banking and financial sector stability, said a senior Central Banker at last week’s media briefing on the current developments of the economy.

He said while discussions between certain institutions are at its initial stages others have made satisfactory progress on reaching consensus on key issues.

The Central Bank in its Road Map launched last month, noted that the bank  is  in the process of developing the Group-wide Consolidated Supervision (GCS) framework to be adopted under risk-based supervision of financial groups. Last year, the Central Bank commenced the implementation of GCS framework by carrying out limited GCS, based on the observations of relevant supervisory authorities.The bank will consider providing other regulatory relaxations to banks, where possible this year considering the extraordinary circumstances that prevailed last year.

The Central Bank also expects to review the Banking Act during the year, expecting to upgrade the legal and regulatory framework of licensed banks to further strengthen the financial system of the country. 

Banking institutions for identifiable market niches, such as development banks, are accepted. Large commercial banks will be encouraged to continue looking into avenues of expanding into regional markets. 

The Central Bank will continue to facilitate a market-driven consolidation process, enabling small and medium-sized banks to merge with other banks, preferably with larger banks having sound financial positions and viable business models.

The regulator had identified several ailing financial institutions facing severe liquidity issues to merge with larger and stable institutions under its long term financial sector consolidation program.

 “We have found out the institutions that urgently need to come under the consolidation program which we are currently working on to ensure stability in the finance sector of the country,” a senior official of the  Central Bank said. However, financial sector experts have been harping that there is no use in shutting the door after the horse had bolted, which was the case with closure of The Finance Company, a long-standing and reputed financial entity in the country.    “Our plan is to consolidate and have mergesbetween stronger and weak entities to ensure financial stability in the sector,” he said. Meanwhile the State Minister of Finance said ensuring financial sector stability with stronger institutions is key to boost the economy.