April, 19, 2021
The Monetary Board of the Central Bank of Sri Lanka (CBSL) issued directions on foreign currency borrowings by Licensed Finance Companies (LFCs) on 9th April 2021 with a view to provide flexibility for LFCs to obtain low-cost funding from foreign sources to support their business expansions. The objectives of these directions are to stabilise any financial volatilities created by the foreign funding exposures of LFCs and provide a risk management framework for such foreign currency borrowings.
Prior to these directions, CBSL permitted LFCs satisfying criteria such as utilization for purposes with national interest, maturities over 5 years, complying with the prudential requirements, etc. to raise foreign currency borrowings on a case-by-case basis up to 10 per cent of total assets.
Considering that several LFCs have been raising foreign borrowings at relatively lower costs to finance their business operations, their satisfactory track record in loan repayments and the current market developments, the new directions have been introduced with the following features.
Overall, the new directions have provided greater flexibility to LFCs to raise funds from foreign sources in a prudent manner for their future business expansions which will support development activities of the economy.
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