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Monetary policy in Maldives has been aimed at achieving and maintaining
price stability, by using an exchange rate peg with the US dollar as the
intermediate target, in a manner conducive to balanced and sustainable growth
of the national economy. The main policy instruments currently in use are
the Minimum Reserve Requirement (MRR), Central Government Treasury bills
(T-bills), Re-purchased (Repo) and Re-discount facilities. |
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Monetary Measures & Prudential Regulations
The key prudential regulations currently in effect are: |
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| a. |
Pursuant to Law 9/85 of 27 June 1985, all commercial
banks operating in the Maldives are required to pay a profit tax of
25 percent. |
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| b. |
With effect form 20 September 1986, all commercial banks
operating in Maldives are required to include their loan agreements,
the provision that re-payments are to be made in the currency in which
loan is disbursed. |
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| c. |
With effect from 25 April 1996, banks are required to
follow the MMA’s classification criteria in accordance with
a uniform credit risk grading system or loan asset classification
matrix and charge a loan loss provision against all classified loans
and advances as per regulations established by the MMA. |
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| d. |
With effect from 31 December 1996, all foreign banks
operating in Maldives are required to obtain MMA’s approvals
on all payments and profits repatriation to their head office. |
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| e. |
With effect form 3 December 1996, all commercial banks
are required to use a standard format of Financial statements outlined
by the MMA, and to exhibit the annual financial statements in a conspicuous
place within the place of business of the bank. |
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| f. |
With effect from 23 March 1997, all commercial banks
reserve and clearing account with MMA have been consolidated and computation
of MRR has been changed to a weekly average basis. |
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| g. |
With effect form 30 April 1997, all commercial banks
are required to report their Net foreign currency position to MMA
on a daily basis. |
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| h. |
With effect from 29 October 1997 banks are required
to submit a report on the classification of loans and advances on
a quarterly basis. |
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| i. |
With effect from January 1998, all banks are required
to complete the form “Computation of Risk Weighted Assets”
and submit it to the MMA on a quarterly basis. |
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| j. |
With effect from 1 January 1998 all commercial banks
are required to maintain a Minimum level of paid-up Capital that is
not less than Rufiyaa 30 million. Branches of foreign banks operating
in Maldives will meet a similar Minimum Capital Requirement (MCR)
through the assignment or allocation of equity capital in to their
Maldives operations from the home country office. Half of the MCR
has to be deposited with MMA as “capital deposit” bearing
interest of 1.5 percent per annum. In addition, all commercial banks
have to maintain, at all times a capital adequacy ratio not less then
8 percent of risk-weighted assets. |
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| k. |
With effect from 19 July 2000, the MMA discontinued
the foreign exchange purchases and sales services of the Post Office
Exchange (POE). Commercial banks were requested to provide these services
to general public in a cooperative and sustainable manner. (Including
the purchase, sales and collection of miscellaneous foreign currency
notes and other related instruments). |
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| l. |
With effect from 10 December 2000, banks are required
to submit details of foreign currency sales on a daily (next day)
basis. |
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| m. |
With effect from 20 December 2000, banks are required
to submit their credit position on a daily basis. |
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| n. |
With effect from 1 January 2001, banks are required
to seek MMA’s approval to appoint new CEO/GM for their banks. |
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| o. |
With effect from 5 July 2001, banks are required to
submit on a daily basis their total outstanding loans and advances
and on a weekly basis, the breakdown of loan portfolio by major economic
groups. They are also required to submit their interest rates, commissions
and fees on a weekly basis. |
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| p. |
With effect from 24 June 1995, commercial banks are
free to determine the annual rate of interest chargeable on loans
and advances denominated in US Dollars. |
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| q. |
With effect from 15 August 2001, commercial banks are
free to determine the annual rates of interest chargeable on loans
and advances and the annual interest payable on deposits denominated
in local currency. |
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| r. |
With effect from 2 October 2005, the MMA discontinued
publishing the exchange rate for foreign currencies accept for the
US dollars. This was replaced by a system in which all commercial
banks were required to publish their own exchange rates except the
US dollar. |
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| s. |
With effect from 10 September 2006, the MMA started
issuing T-bills on behalf of government as a replacement of MMA Certificates
of Deposits (CD’s) with participation limited to banks and state
owned enterprises (SOE’s) only. |
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| t. |
With effect from 1 June 2006, the Minimum Reserve Requirement
(MRR) for commercial banks was reduced from 30 percent to 25 percent
of the average local and foreign currency demand and time liabilities,
excluding interbank liabilities and L/C margin deposits. Balances
of the minimum reserve deposits in excess of 15 percent bear an interest
rate of 2.5 percent per annum. The reserve requirement for local currency
has to be met in the form of Rufiyaa deposits, while for foreign currency,
US dollar deposits are required. |
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| u. |
With effect from 23 November 2006 MMA introduced a Repurchase
Facility (Repo) to replace the “Lombard Facility” to provide
short-term rufiyaa liquidity to commercial banks operating in the
Maldives that are unable to access funds on the interbank market.
Repos are available for terms of one to seven days and the Repo rate
is set at a margin above the one month T-bill rate so as to provide
sufficient incentive for banks to look first to the interbank market
before seeking recourse to the MMA for funds. |
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| v. |
With effect form 23 November 2006, the MMA introduced
Rediscount Facilities to develop a secondary market for T-bill holders.
The facility is limited to only T-bill holders. The discount rate
is set at a margin above the T-bill rate, so as to provide sufficient
incentive for bank to look first to the interbank before seeking
funds from MMA.
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