Banks build forex balances

Sri Lanka’s banks have built 3.7 billion dollars of balances with financial institutions abroad by the second quarter of 2024, rising sharply over a currency crisis, official data shows.

“The Banking sector maintained a considerable amount of FCY (foreign currency) funds with financial institutions abroad for the prudential liquidity risk management,” the central bank said in a financial stability review.

“The Banking sector significantly improved their balances with financial institutions abroad since 2021 to meet their liquidity needs in FCY, in an environment where an FCY liquidity deficit was prevailing in the domestic forex market.”

The balances had peaked at over 4 billion US dollars in the third quarter of 2023 and have since declined.

Banks had steadily reduced their borrowings abroad.