ECONOMYNEXT – Sri Lanka will have to balance the interests of depositors and banking stability by granting concessions to small and medium-sized enterprises (SMEs) and others that have been hit by an economic downturn and high interest rates, said a central bank official.

The Central Bank has ordered banks to provide debt relief to the tourism sector from 2019 and others from time to time, including during the coronavirus period.

However, banks now face a tense situation with mark-to-market losses on bond portfolios as well as bad debts themselves.

“We have asked banks to look at their customers, especially SMEs that are under debt moratoria, including tourism and other SMEs,” Central Bank Governor Nandalal Weerasinghe said during a briefing. a policy review meeting in July.

“This is how we try to minimize the impact on rising inflation and interest rates, especially in the SME sector.”

Inflation in Sri Lanka is expected to reach 70% by the end of the year.

With this in mind, the Central Bank raised the rates at which overnight money is printed for banks by 100 basis points to 15.5%, its highest level since September 2001.

“At these high interest rates, businesses may not take out new loans. The impact on existing loans is what we are trying to manage. We have given some advice on this and how to deal with this situation,” the governor said.

The Central Bank has issued guidelines for banks to grant concessions to banking sector loans.

“It will be a general guideline that we are going to issue, unlike previous times when we were talking about a specific period and a specific regime,” said Yvette Fernando, deputy governor of the Central Bank.

Banks have the discretion to talk with their borrowers to understand their ability to repay and the viability of their businesses and the underlying purposes for which they took out loans.

“In doing that what we said is to consider at least giving a grace period. Maybe for principal or for principal and interest at least for a period of 6 months to start said Fernando.

Banks were also advised to agree a down payment amount that borrowers paid before the onset of COVID, when restructuring loans.

“It’s for loans that were working at the start of COVID,” she added.

She said there are concession methods provided for non-performing loans and banks have been advised not to undertake collection actions and give time for mitigation measures.

“We continually told the banks that they needed to have a discussion and agree on those terms and do the individual loan restructuring.”

The Central Bank has also requested a special concession for rice millers due to the current crisis, as they are important for the food supply of businesses.

For early debt settlements at least before September 30, the Central Bank wants banks to grant waivers on any additional interest or charges.

For loans that have generated additional interest, banks are advised not to charge more than the current standard lending facility rate of 15.5%.

The Central Bank also wants banks to prepare a CRIB report so that banks know that companies have not repaid their loans due to the economic crisis and not for other reasons.

“Even in the past, we wanted CRIB reports to be done separately on these types of loans, so that when banks assess their customers, they know that these delays in repayment are not due to their normal delays but to the situation. specific that’s there. We had to provide that information separately to do the case-by-case assessment,” Fernando said.

The Central Bank will issue similar guidelines for the non-banking financial sector.

Instructions can be found here: https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/laws/cdg/bsd_circular_no_2_of_2022_e.pdf