Ajith Nivard Cabraal: Developments in the evolution of central banking and challenges faced by central bankers Inaugural speech by Mr Ajith Nivard Cabraal, Governor of the Central Bank of Sri Lanka, at the International Course on Central Banking organized by the Centre for Banking Studies, Colombo, 22-23 May 2007. *  *  *  Ladies and Gentlemen, I am pleased to be here to address you at the opening ceremony of this international course on Central Banking. Let me also welcome all the participants to the course and extend to the participants from overseas countries and Prof. Sinclair, a very warm welcome to our country. The Centre for Banking Studies(CBS) has provided training opportunities for officers in the financial sector in Sri Lanka over the last 26 years. It also has past experience in coordinating a number of international programmes of the SEACEN Centre, APRACA and World Bank held in Sri Lanka. Also several officers of central banks in SARRC countries have participated in the scheduled programmes of the Centre, though they were not specially designed for an international audience. This Central Banking course in fact is the very first international programme designed and conducted by CBS. I am glad that there are 14 overseas participants at this first programme. I congratulate CBS for successfully organizing it. I am sure that there will be more overseas participants in the forthcoming international programmes. Our plan is to invite eminent resource persons to conduct these international programmes.
Banks will need to further build on this significant progress in order to meet the challenges going forward. These include macroeconomic challenges, growing pressure from increasing competition, and the changing regulatory environment. Obviously, the ability to meet these challenges varies among banks. But we, as regulators, are well prepared to steer a steady course for the banking system as a whole. As you know, the first phase of the Financial Sector Master Plan has been completed. We have already seen significant consolidation and increased efficiency of the banking sector. We are moving onto the second phase of the Master Plan, which will further step up the pace of reform. This will increase the efficiency of the system and ensure that it can meet intensified competition that will come with globalization. BIS Review 20/2007  3  Let me emphasize that globalization is a pervasive process. Given financial innovations, it can transcend national borders even without an explicit market opening. Our liberalization strategy is to ensure strengthening of the domestic system, and allow gradual opening of the banking sector. This will mean new entries into the system, as well as more intensified competition between existing players. The phasing of this process will be consistent with continued economic and financial stability. The banking system must be prepared for greater competition. Improved risk management framework will be the critical success factor for banks' ability to meet future challenges. These include the adoption of IAS 39, currently underway, and the new Basel Capital Accord at the end of next year.