It covers payment methods and information on, banking systems, foreign exchange controls, and U.S. and correspondent banking.
Methods of Payment
Payments for import of goods can be made under letters of credit (LC), documentary collections (documents against payment (DP) or documents against acceptance (DA) terms) or advance payment (AP) terms. Goods can also be imported to Sri Lanka on a consignment-account basis, where the goods imported are books and periodicals, or ornamental fish imported for re-export. Letters of credit are valid for up to 365 days. Imports on advance payment terms are allowed. Advance payments can be made through bank draft, mail transfer, or telegraphic transfer. Goods for which an advance payment has been made should be received by the importer within 90 days of affecting the remittance.
Basic documents required by commercial banks for imports include an invoice, insurance certificate (if applicable), and transport documents. Depending on the product and the mode of payment, certificates such as certificates of origin, inspection certificates, and packing lists may also be required. Shipments by air cargo may require the same documentation as those arriving by sea. All shipping documents in relation to imports made on DP or DA terms should be forwarded by the supplier’s bank or by the supplier to a commercial bank in Sri Lanka for release to the importer of goods. In the event the original documents are not received on time, the importer, at the discretion of the bank, may obtain a shipping guarantee and may submit copies of these documents for certification by the bank for clearance of the goods. The importer should arrange the original shipping documents to be received by the bank concerned within 30 days from the date of certification of the copies.
To clear goods through customs, the importer should submit relevant shipping documents certified by a commercial bank and customs declaration forms to the Sri Lanka Department of Customs. In the case of an import made on AP basis, goods will be released on submission of satisfactory proof of payment such as bank confirmations. In the case of an import made on consignment-account basis, goods will be released by customs on the submission of clearance documents.
For more information about the methods of payment or other trade finance options, please read the Trade Finance Guide available at https://www.trade.gov/trade-finance-guide-quick-reference-us-exporters.
Sri Lanka has a fairly well-diversified banking system, which includes the Central Bank of Sri Lanka (CBSL), two large state-owned commercial banks (Ceylon Bank and People’s Bank), eleven private domestic commercial banks, thirteen foreign banks, a national savings bank, a regional development bank, two housing banks, and three licensed specialized banks. Citibank N.A. is the only U.S. bank operating in Sri Lanka. The domestic commercial banks operate branches throughout the island. All commercial banks operate foreign currency banking units and conduct off‑shore business and finance projects approved by the BOI. CBSL is responsible for regulation and supervision of Sri Lanka’s banking system. The legal framework consists of the Monetary Law Act and the Banking Act. The Central Bank is empowered to issue detailed directives to the commercial banks. In 1993, Sri Lanka adopted the Basel Accord capital guidelines for commercial banks. Sri Lanka adopted Basel III capital standards in 2017 and capital requirements for Sri Lankan banks have increased. According to the Central Bank the banking sector maintained capital ratios at a comfortable level in 2019. The Central Bank has requested banks to enhance minimum capital requirements by 31 December 2022.
Sri Lanka adopted International Financial Reporting Standards (IFRS) in January 2012 by issuing Sri Lanka Financial Reporting Standards and Sri Lanka Accounting Standards. Commercial banks are required to comply with these accounting standards and Central Bank guidelines. In January 2018, Sri Lanka adopted New IFRS9 standards set out by the International Accounting Standards Board, which require banks to set aside provisions for future losses and introduced a new basis for financial asset classification and a model for hedge accounting.
Foreign Exchange Controls
Sri Lanka removed exchange control restrictions on current-account transactions effective March 15, 1994. Sri Lanka relaxed exchange controls on several categories of capital account transactions beginning 2010. A new Foreign Exchange Act was introduced in 2017, further liberalizing capital transactions.
If a project receives BOI approval, the project generally avoids capital controls.
In times of balance of payments difficulties, however, the government tends to impose controls on foreign exchange transactions involving the current account. In April 2020, Sri Lanka imposed restrictions on outward remittances for capital investments and also introduced import controls as a measure to ease the pressure on the currency. The Central Bank has introduced an export proceeds monitoring system as well. All exporters are required to provide details regarding export proceeds to the Central Bank on a quarterly basis.
U.S. Banks & Local Correspondent Banks
Citibank is the only U.S. bank present in Sri Lanka. All Sri Lankan commercial banks have correspondent relationships with U.S. banks.