LNP – ADB approves USD 200 mln loan to strengthen Sri Lanka’s financial sector reforms

The Asian Development Bank (ADB) today approved a $200 million policy-based loan to further help the Government of Sri Lanka strengthen its financial sector.Â

This second subprogram of ADB’s Financial Sector Stability and Reforms Program builds on the stabilization and crisis management measures put in place under the first subprogram approved in 2023, a statement said.

“Sri Lanka has made good progress in stabilizing macroeconomic conditions and improving the fiscal situation. ADB is helping the country establish long-term growth by introducing and institutionalizing structural reforms in its financial sector,” said ADB Country Director for Sri Lanka Takafumi Kadono.Â

“This subprogram reinforces ADB’s support in strengthening the governance of the banking sector and expanding financial inclusion in Sri Lanka to achieve sustainable recovery from economic crisis, resilience, and poverty alleviation.”

Policy reforms under subprogram 2 will improve the Central Bank of Sri Lanka’s (CBSL) regulatory supervision of banks to ensure financial stability. This includes an improved early warning system that will identify weakening processes of banks and introduce corrective actions. The CBSL will implement a new stress testing model to monitor solvency issues and liquidity stresses.

Subprogram 2 will continue to strengthen the banking sector’s asset quality. The CBSL will provide guidance on credit concentration risk limits and give incentives to banks to accept guarantees and limit collateral requirements to micro, small, and medium-sized enterprises (MSMEs). In addition, the Ministry of Finance, Economic Development, Policy Formulation, Planning and Tourism (MOF) will provide MSMEs, especially women-led businesses, incentive packages such as special loans to expand their business.

Financial inclusion of women and vulnerable groups will be further expanded through the digitization of personal information to enhance electronic transactions. The MOF will formulate a policy framework for women-led MSMEs to improve their access to finance, with the CBSL helping financial institutions identify eligible women entrepreneurs, the statement added.

ADB said it is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 69 members—49 from the region.