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Code name: Sigiriya and Pidurutalagala
Central Bank ‘was prepared for financial crisis with secret plans’
New ratings to help in regulation

Central Bank Governor Ajith Nivard Cabraal said the Central Bank had formulated two rescue plans for banks and financial companies in the event the financial crisis during the latter pat of 2008 and after threatened to send any of them under. The two plans were given code names Sigiriya and Pidurutalagala.

"We were prepared for the financial crisis and ready to resolve any threats to financial stability. We prepared two rescue plans for banks and finance companies, and now that the crisis is behind us it is okay to divulge some secrets," Cabraal said earlier this week.

"The two rescue plans were given code names, Sigiriya and Pidurutalagala. So we were well prepared for anything," he said.

Cabraal said timely intervention of the authorities to stabilize Seylan Bank and other registered finance companies had helped to stabilize the financial sector and prevent contagious effects triggered by the Golden Key Credit Card Company scandal.

"Throughout 2009, these plans were further improved so now we would be better prepared for any future issues," Cabraal said.

Seylan Bank, part of the Ceylinco Group which Golden Key was a part of, faced a run on its deposits after the Rs. 26 billion Golden Key scandal broke out in 2008. The Central Bank stepped into to appoint a new Board of Directors and the bank soon recovered.

Seylan Bank made a successful public offering last year and also opened several new branches in Jaffna in December 2009.

New rating system…

Cabraal said a new rating system would be introduced this year to help the Central Bank evaluate the financial strength and soundness and risk management practices of financial institutions.

"A Composite rating would be assigned to each bank based on continuous surveillance and examinations conducted by the Central Bank," he said.

Cabraal said the rating would be used by the Central Bank to focus more on banks at the bottom of the ratings and later would be shared with the respective banks.

"By 2011, banks would be classified in accordance with their level of compliance with laws and prudential regulations," he said.

The banks would be categorized into two; banks without material non-compliance and banks with material non-compliance.

Cabraal said the Central Bank undertook stress testing of banks as part of its tool-kit to supervise the financial sector. It allowed the Central Bank to gauge the impact of risks on capital and solvency of banks.

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