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Interest write-offs, central bank guaranteed loans for Sri Lanka troubled SMEs

ECONOMYNEXT – Sri Lanka’s distressed small and medium enterprises with get interest write-offs and new working capital guaranteed by the central bank to re-start their businesses, officials said, while those with performing loans will get extended periods to repay.

“From today onwards with the permission of the Monetary Board (of the central bank) we have started this project under two categories,” State Minister of Finance Shehan Semasinghe said.

“Our intention is to strengthen these SMEs as well as to protect them.”

Non-performing loans

All recovery actions on SME with non-performing loans that had gone bad before December 31, 2019 will be halted and penal interest will be waived.Treasury Secretary Sajith Attygalle said.

If the SME had repaid 50 percent or more of the loan before it went bad, 50 percent of the accumulated interest will be suspended.

The borrower will be given twice the original remaining time and one year grace period to repay the loan principle and remaining interest

If the borrower repays the loan in full, the suspended interest will be written off.

If the SME borrower had repaid less than 50 percent of the loan, 25 percent of the accumulated intrest will be written off.

If the borrower repays the principle and remaining interest during extended period, the suspended interest will be written off.

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Central Bank Guarantee

If the company has failed working capital for three months will be provided to be repaid in six months with a three month grace period.

The loan interest should not be more than the 2 percent above the reverse repo rate.

Sri Lanka’s Central Bank will give a guarantee for the loan.

The licensed bank giving the loan should pay a 1 percent premium to the Rural Credit Department of the Central Bank.

Attygalle said there were some funds in the Central Bank which could be used to guarantee the credit.

Performing Loans

For SMEs with performing loans, licensed bank will give a moratorium till December 31, 2020 on principle repayments.

The repayment period must be extended without increasing the installment amount.

No penal interest can be charged during the period of the moratorium, only the rate on the loan agreement.

If the customer provides a good business plan, licensed banks are expected to give a loan of up to 300 million rupees at a rate equal to the weighted average prime lending rate, with a repayment period of 5 years and one year grace.

Overdrafts which are expected to be settled by March 31, 2020, should be extended until June 30.

Import loans which have be settled by March 31, should be extended for 30 days. (Colombo/Jan08/2020)