AMENDMENTS TO DIRECTION ON EXPOSURE TO STOCK MARKET
FOR LICENSED COMMERCIAL BANKS IN SRI LANKA
The Monetary Board reviewed the banks exposures to the stock market and the credit limit
on margin trading facilities of 5 per cent of total loans introduced on 26 August 2011. Considering
the market correction reflected in the Price Earnings Ratio and the low utilisation of the credit
limit on margin trading by many banks since August 2011, indicating banks' commitment towards
prudent risk management, the Monetary Board is of the view that a possible assets prices bubble may not arise. The Monetary Board. therefore, decided to remove the credit limit imposed on margin trading on shares requiring banks' board of directors to monitor and manage exposures to stock market within prudent internal limits based on tolerable levels.
Accordingly, the Monetary Board in the exercise of the powers conferred by Section 46(1) of
the Bankin g Act, No. 30 of 1988, last amended by the Banking Act, No. 46 of 2006, hereby issues
Banking Act Direction No. 1 1 of 2011 on Exposure to Stock Market for Licensed Commercial
Banks amending the Banking Act Direction No. 5 of 201 1 as follows:
1 Direction Nos. 1(iii) will be replaced with the following:
(iii) the board of directors set their internal limit on margin trading on shares based on
tolerable levels in line with the risk management framework referred to in Direction 4
below and mantain the total exposure to margin trading on shares within such limit.
2. Direction No. 7 is hereby repealed.