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Banking sector foreign currency assets increased by $ 400 mn in Jan-Aug 2022

11 Nov 2022

  • Foreign currency assets see higher increase than liabilities, notes CBSL
  • Central Bank supplies $ 675.1 mn to market over January to September 
By Imesh Ranasinghe  Sri Lanka’s banking sector has seen an increase in foreign currency assets by $ 400 million in the first eight months of 2022, as the net foreign currency exposure of the banking sector increased to $ 534.6 million from $ 132.2 million at the end of 2021, the Central Bank of Sri Lanka (CBSL) revealed. According to the report “Recent Economic Developments – Highlights of 2022 and Prospects for 2023” released by the CBSL, the net long-term position of foreign currency exposure of the banking sector increased by $ 402.4 million due to a higher increase in foreign currency assets compared to the increase in foreign currency liabilities. The report also said that a net gain of Rs. 11.1 billion on foreign currency revaluation was recorded during the eight months ending in August 2022, compared to a net gain of Rs. 21.9 billion during the corresponding period of 2021. Moreover, during the nine months ending September 2022, trading volumes in the domestic foreign exchange market continued declining, as the daily average trading volumes in the domestic inter-bank foreign exchange market declined by 23.4% to $ 39.7 million during the period under consideration, compared to $ 51.8 million recorded in the same period in 2021. Central Bank was a net seller to the domestic foreign exchange market during the nine months up to the end of September 2022, although the Central Bank continued to absorb foreign exchange through non-borrowed sources by mandating licensed banks to sell a certain percentage of converted workers’ remittances and mandatorily converted export proceeds of goods and services into Sri Lankan rupees. “The acute shortage of liquidity conditions in the domestic foreign exchange market necessitated the Central Bank to supply US dollars to finance essential imports, mainly including fuel and coal, on a net basis during the year up to the end of July 2022. However, this was managed through a number of measures taken, including the cessation of the importation of goods via open account payment terms in May 2022 and the discouraging of non-essential imports to a greater extent,” the report said.  The liquidity position in the domestic foreign exchange market improved gradually by the end of July 2022, enabling the Central Bank to absorb US dollars on a net basis during the months of August and September 2022.  Accordingly, from January to the end of September 2022, the Central Bank absorbed $ 1,383.5 million and supplied $ 2,058.6 million, resulting in a net supply of $ 675.1 million to the market. 


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