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Sri Lanka approves Rs178bn central bank re-financed bank credit, breaking limit

ECONOMYNEXT – Sri Lanka has approved 178 billion rupees of credit through commercial lenders mostly through re-financed by the central bank (newly created reserve money or excess liquidity), exceeding an original self-imposed limit of 150 billion rupees.

The central bank said 177.54 billion rupees (about 960 million dollars at current spot exchange rates), had been approved and banks had already disbursed 133.19 billion rupees to 45,582 businesses.

Phase I of the scheme branded Saubagya Covid-19 facility was implemented from April 01. Phase II and Phase III of the scheme started from July 01, 2020 to firms and businesses hit by the Coronavirus outbreak.

The credit schemes would provide loans at 4 percent per year. They had a repayment period of 24 months, including a grace period of 6 months.

The central bank also offered an 80 percent credit guarantee scheme for banks to lend with already created money with a 5 percent interest subsidy.

The central bank placed a limit of 150 billion rupees on the loans scheme.

“In view of the large number of requests received from the affected businesses, the Central Bank of Sri Lanka decided to accept applications regardless of the Rs.150 billion limit originally envisaged,” the central an said.

“All applications of the affected businesses received up to the announced deadline were therefore, served through the Loan Scheme.”

On October 05 excess liquidity in the banking system was 173 billion rupees, after repaying a sovereign dollar bond with a reserve appropriation under established practices (against Treasury bills through a back to back transaction) and a partial absorption of excess liquidity .

Sri Lanka’s current interest rates (which are also under recent inflation) are therefore below the level they would have been had the bond outflows been paid with real resources (domestic credit) and there been no injection, analysts say.

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In the event of a credit pick up (and/or foreign loan repayments) an injection of 178 billion rupees would create an imbalance on the balance of payments (forex shortage) of arond 960 million dollars with the peg at 184.50 to the dollar.

Central Bank approved 61,907 loans amounting to Rs. 178 billion through Saubagya COVID-19 Renaissance facility

The Central Bank of Sri Lanka, as of 15th October 2020, approved 61,907 loan applications received from COVID-19 affected businesses. These applications were for a total of Rs. 177,954 million and registered under the three Phases of the Saubagya COVID-19 Renaissance Facility. So far, the Licensed Banks have released loans amounting to Rs. 133,192 million among 45,582 affected businesses island-wide (See Table 1 for details).

Phase I of the Loan Scheme was implemented with effect from 1st April 2020. Both Phase II and III of the Loan Scheme were introduced with effect from 1st July 2020. The intension of these schemes was to provide a total of Rs. 150 billion as working capital loans at interest rate of 4 per cent per annum. These loans enjoyed a repayment period he ceof 24-months, including a grace period of 6-months. The recipients were the businesses, including self-employment and individuals, adversely affected by the COVID-19 outbreak.

In view of the large number of requests received from the affected businesses, the Central Bank of Sri Lanka decided to accept applications regardless of the Rs.150 billion limit originally envisaged. All applications of the affected businesses received up to the announced deadline were therefore, served through the Loan Scheme.