The Sri Lankan banking and financial services industry is stable, vibrant and market driven and hence as a customer you are at an advantage. There are around 80 institutions spanning hundreds of branch located islandwide, including commercial banks, licensed specialised banks (savings banks and development banks) and licensed finance companies. The three categories serve different purposes and your interaction will be mostly with commercial banks, of which there are currently 25institutions. These Banks include local and foreign banks, where the local banks are very well represented around the country and the foreign banks are mostly available to you in the main cities (Colombo, Kandy and Galle).

The Sri Lankan banking industry is known to offer interest rates ranging from 3% to 8%  which is relatively high compared to other frontier and emerging markets. The advantage of this scenario is, as an individual you will earn more by saving your money in LKR denominated accounts. Further down the discussion we will illustrate to you the different types of accounts available to you for your LKR and foreign currency deposits.

Accessibility

Most of the Banks now offer internet banking in order for you to be able to access your accounts and carry out transactions from your home. In terms of physical presence too, the Banks are very committed to be present in every town and city as the level of competition is high. Some banks have even tied up with supermarkets, which also have a wide reach and increases the time available for transactions. Furthermore as the industry is automated you can carry out transactions from any Branch of the Bank you choose, and not restrict yourself to the Branch you opened your accounts.

Products

  • Current accounts
  • Saving products – you can either have savings accounts or fixed deposit accounts.
  • Borrowing – there are a host of borrowing products like, personal loans, housing loans, student loans, vehicle loans,
    loans to fund your children’s education abroad etc.

The above services are offered by some or all of the three categories of institutions described below.

Some popular banks

Local:

  • Hatton National Bank
  • People’s Bank (State-owned)
  • Bank of Ceylon (State-owned)
  • Commercial Bank
  • National Savings Bank (State-owned)

International:

  • HSBC
  • Standard Chartered Bank
  • Deutsche Bank
  • Citi

Types of institutes

Commercial Banks: These banks will offer to you all the above services, their accessibility will be the widest, however in terms of the interest rate on LKR deposits it will not be as attractive as finance companies.

Licensed Specialised Banks: As mentioned above, this category include savings banks and development banks. In terms of products, their offering to you is limited. However in terms of housing loans the National Savings Bank will offer to you the best interest rate.

Licensed Finance Companies: You will earn the most for your LKR deposits from these institutions. However the product offering to you is limited to saving deposits, fixed deposits and vehicle leases or hire purchase.

A snapshot of the different institutions and LKR denominated deposits

Commercial Banks Licensed Specialised Banks Licensed Finance Companies (LFC)
No. of institutions[1] 25 as at 30 September 2014 09 as at 06 January 2015 48 as at 10 October 2014
Savings Accounts Interest rate is around 3-6% p.a. Liable to WHT[2] Interest rate is around 8% p.a. Liable to WHT
Fixed/Term Deposit Accounts Interest rate is around 6%p.a. for a 12 month deposit Liable to WHT Interest rate is around 8% p.a. for a 12 month deposit
Treasury bills and bonds Interest rate is around 6% p.a. for a 365 day T-bill. Not liable to WHT.
Current accounts No interest accrued, cheque book facilities available

 

Foreign Currency Deposits:

Only offered by commercial banks. There are various accounts available to you depending on your status of residency. The following chart illustrates the different accounts and their features.

Criteria/ Account Type RFC(Resident Foreign Currency account) NRFC(Non Resident Foreign Currency accounts) RNNFC(Resident, Non-National Foreign Currency account) SFIDA(Special Foreign Investment Deposit Account)
For whom Residents of Sri Lanka Sri Lankan citizens working abroad Foreign Nationals residing in Sri Lanka with resident visa Sri Lankan Citizens who are residing out of Sri LankaForeign NationalsForeign Companies
Sub types and interest rates Saving or FixedIndividual or Joint Saving or FixedIndividual or Joint Saving or FixedIndividual or Joint Saving or FixedIndividual or JointCompanies
Documents needed for opening National Identity Card (NIC)Documentary proof for source of funds Passport with relevant work visaEmployment details and documentary evidence Passport and resident visaDocumentary proof for source of funds Proof of identificationDocumentary proof for source of funds
Allowed credits ·Via bank drafts and telegraphic transfers (TTs) drawn in foreign currency·Deposit of currency notes·Transfer from other RFC accounts

·Transfer from NRFC accounts subject to Exchange Control restrictions

·Via bank drafts, TTs drawn in designated currency·Foreign exchange brought into the country by you subject to customs confirmation on passport or customs declaration card·Deposit of currency notes by your immediate family – limited to USD 1,000/- per transaction

·Transfer from other NRFC accounts

·Via bank drafts, TTs drawn in designated currency·Earnings from employment (subject to exchange control approval)·Amounts in LKR by converting to foreign currency for the purpose of remitting abroad (needs to be authorised by Exchange Control) ·Via bank drafts, TTs drawn in designated currency·TCs or currency brought into the country  on declaration to Sri Lanka Customs·Transfer from other SFIDA account

·Transfer from Share Investment Account (SIA)

Allowed debits ·  Any withdrawal in LKR·  Any payment in foreign currency for recurrent international transactions·  If travelling abroad travellers cheques (TCs) or currency will be issued on submission of travel documents

·  Transfer to other RFC accounts

 

·  Any withdrawal in LKR·  Foreign currency withdrawals will be permitted via bank drafts or TTs·  If travelling abroad TCs or currency will be issued on submission of travel documents ·  Any withdrawal in LKR·  Foreign currency withdrawals will be permitted via bank drafts or TTs·  If travelling abroad TCs or currency will be issued on submission of travel documents

·  Fund transfer to Securities Investment Account (SIA)

·      Any withdrawal in LKR·  Foreign currency withdrawals will be permitted via bank drafts or TTs·      Transfers to other SFIDA accounts

·      Fund transfer to Securities Investment Account (SIA)

Ability to draw cheques on the accounts Only savings and Fixed deposit accounts Only savings and Fixed deposit accounts Only savings and Fixed deposit accounts Only savings and Fixed deposit accounts
Taxability No tax No tax No tax No tax
Ability borrow against the deposit Can be borrowed in LKR Can be borrowed in LKR Can be borrowed in FCY against the RNNFC deposit. Can be borrowed in LKR subject to Exchange Control approval
Specific benefits Funds can be transferred back to the foreign bank Option in converting the funds to LKR and invest in rupees to earn higher interest.Reconversion of LKR funds to FCY and remit back.Option to invest in a dual currency structured product where the client can agree to a forward exchange rate to minimise the
exchange rate risk.

Investing in the Colombo Stock Exchange

You can also consider the option of investing part of your money in the Colombo Stock Exchange. Your investment can be routed via two methods:

– approaching a stock broker and making the investment

– investing through a unit trust

Through a Stockbroker: There are 15 members of the stock exchange who are Brokers and your transactions have to be routed through them. They will provide you with the form to open a CDS (Central Depository System) account and from then on you can freely buy and sell shares. Capital gains made on transactions are not taxed however dividends are liable to 10% WHT. The fees/taxes per transaction is capped at 1.12% per transaction (in terms of value)

Through a Unit Trust : If you are more risk averse and are unsure of the stocks you want to invest, you can invest your money in a unit trust, which in turn will invest the money in both debt and equity in companies which will diversify your risk. Return will be in the form of dividends and/ or capital gains. There are many unit trusts operating in Sri Lanka. Capital gains are tax-free in Sri Lanka

Some popular unit trusts are :

  • Ceybank
  • Comtrust
  • NAMAL Unit Trust

[1] Source: Central Bank website

[2] WHT on interest income depends on your total assessable income for a year. The slabs of rates are:

Upto LKR 500,000.00 0% p.a.
between LKR 500,000.00 and LKR 1,500,000.00 2.5% p.a.
LKR 1,500,000.00 and above 8% p.a.

[3] Due to the heavy competition between LFCs to obtain deposits the Central Bank has capped the maximum rate that can be offered on fixed deposits to ensure safety of the depositors. This maximum rate as of May 8th 2013 is 14.45% p.a. for a 12 month deposit.