Numerous requests to limit foreign lending by commercial banks

There is pressure from various sectors, including legal, to take steps to limit loans given by local commercial banks to foreign parties. Concurrently, the Central Bank of Sri Lanka has moved to tighten regulations for repatriating export earnings into the country. The main objective of this is to effectively manage the foreign exchange reserves within the domestic banking system and meet the essential needs of the country.

According to the latest special gazette notification issued under the signature of Central Bank Governor Dr. P. Nandalal Weerasinghe, the period within which exporters of goods and services must convert their foreign exchange earnings into local currency has been significantly reduced from the previous three months to one month. These legal provisions apply equally to both direct and indirect exporters, stipulating that they must convert foreign exchange earned in the previous month into Sri Lankan Rupees by the tenth day of the following month. It is reported that these strict decisions have been taken as a remedy for the recent instability in the value of the local currency.

Due to the unrest in the Strait of Hormuz over the past few months, the value of the Rupee depreciated significantly against the US Dollar, from around Rs. 305 to Rs. 345, states Mr. Sudath Perera, Head of Corporate and Commercial Law at a leading law firm. In addition to macroeconomic strategies previously implemented by the government to strengthen the Rupee, such as vehicle import restrictions and interest rate hikes, these new exchange regulations have been enforced.

While such measures are essential to increase foreign exchange liquidity within the country, economists emphasize that there must be strict regulation on how the funds added to the banking system are utilized. Especially after the economic crisis faced by the country, there has been a growing trend of commercial banks providing uncontrolled loans to foreign parties using funds from domestic depositors. Therefore, relevant sectors are calling for the government to immediately impose strict limits on this. For urgent national needs and to secure the necessary foreign provisions for importing essential goods, it is crucial for this foreign exchange to circulate efficiently within the domestic banking system itself.