our stock markets, our bond markets and our foreign currency market work as a market and really respond to the challenges of bringing in more participants, broadening its appeal and becoming real instruments of channeling the savings not only of sri lankans but also of people living overseas so that institutions and our real businesses can benefit from those flows of financial activity and grow at a stronger pace than they have grown in the past. that is our broad challenge going forward and at the same time ensuring that we do not allow the sort of excesses that creep in, in such situations which cause financial disturbances and panics. so this is going to be the challenge going forward for all of us, to establish that stability and to have a very clear set of rules. remember that the way financial markets have evolved historically for centuries is on the basis of having “ rule - based ” systems, where every player in the market, whether it is the regulator or the regulated, abides by a set of rules. and that is the most effective way for any system to function. it cannot be based on the whims and fancies of the regulator, or the government or any single player in the market. there has to be an even playing field, the goalposts have to be stuck very firmly in the same place and the same rules have to apply, just like game football or cricket. you cannot change the rules as you go along. that to me, is very essential. so at the moment we are trying to make those rules very clear to all the market players in various forms. we have already done so in most of the markets, in the foreign exchange market, in the fixed income markets, and i think the sec is now trying to establish the rules in the equity market. once all that comes together i think you will see a significant improvement in the way our entire financial sector operates and hopefully that will be the main conduit for financing of development in the years to come. so this deals more or less with the challenges we have in the financial space and our efforts to ensure financial stability. but really, it is the third objective, which is the economic development of the country that i wish to spend a few minutes on today. this is the area, which, for various reasons central bank has engaged and disengaged over the years and decades. basically, the bank took a backward step about fifteen to twenty years ago and very understandably so, because that was the time when the war

of licensed banks are carried out prudently and in line with the international best practices. the central bank will also formulate a crisis preparedness plan for the banking industry, to minimise the adverse impact on troubled banks and mitigate spillovers. a consultation paper will be issued to banks in this regard. as we firmly believe in the need for strengthening inter - regulatory cooperation and collaboration, a memorandum of understanding was signed between the central bank, securities and exchange commission and insurance regulatory commission on risk based consolidated supervision where the central bank will be the lead regulator. as we have reiterated on many occasions, market driven consolidation will be facilitated with the objective of promoting strong and dynamic banking and non - bank financial institutions to meet financial needs of the economy more effectively, while safeguarding the stability of the financial system. the performance of licensed finance companies ( lfcs ) and specialised leasing companies ( slcs ) slowed down significantly during 2018 due to low credit growth, declining profitability and increasing nonperforming loans. the slowdown in the sector was also a result of moderate economic growth and the impact of natural calamities, such as floods and drought conditions that prevailed in 2017 and the first half of 2018. policy measures taken to curb excessive demand for vehicle imports also impacted the sector significantly. several regulations were introduced to strengthen non - bank financial institutions during 2018. a financial customer protection framework was introduced to protect customer interests and to strengthen customer confidence in the sector. a new capital adequacy framework for lfcs and slcs was implemented with a view to fostering a strong emphasis on risk management and to encourage ongoing improvements in the risk assessment capabilities of the sector. in terms of the new framework, companies with assets over rs. 100 billion are required to maintain higher capital adequacy ratios. moreover, a new direction on outsourcing of business operations was introduced to standardise outsourcing arrangements. a direction was issued to regularise the valuation procedure of the lfcs and slcs regarding immovable properties. in the interest of depositors and stability of the system, several resolution actions were taken in relation to distressed companies during 2018, including cancellation of some licences and introducing regulations on winding up lfcs. going forward, the sector needs to cope with enhancement of the minimum capital requirement and higher loan loss provisioning with the introduction of sri lanka financial reporting standards 9. further, the change in the regulatory posture of the central bank will result in early interventions against noncom