Sri Lanka borrowers getting moratorium should continue to pay interest: Cabraal

ECONOMYNEXT – Sri Lanka’s borrowers who are using a debt moratorium of up to 300 million rupees should continue to pay interest which will help bank’s revenue and profits, Senior Economic Advisor to the Finance Minister Nivard Cabraal said.

Sri Lanka’s President Gotabaya Rajapaksa and Prime Minister Mahinda Rajapaksa, who is also finance minister had asked bank heads to offer a moratorium of up to 300 million rupees for small and medium borrowers, a government statement said Friday.

“The borrowers should continue to pay interest,” Cabraal said.

Formal directions are expected to be issued following discussion with banks and the central bank.

The moratorium is not only for loans that have gone bad.

“Borrowers who requests would be able to avail themselves of the moratorium,” Cabraal said.

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Debt repayments including interest and principle are a key cash inflow for banks, in addition to raising new deposits for banks, raising concerns whether they would be forced to raise more deposits.

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Cabraal said at the moment many banks were depositing excess liquidity in the central bank, and loan growth was weak.

Since the debt moratorium was only for one year, as soon as the economy picked up, debt repayments would resume he said.

Sri Lanka’s central bank placed deposit price controls soon after the rupee collapsed in an unprecedented intervention in the banking system, though the loss of potential deposits to banks and loss to consumption is not known.

Rating agencies warned at the time that the biggest hit from the sudden intervention was on the smallest banks.

The deposit price control has been lifted. The average weighted new deposit rate increased to 8.66 percent in October from 8.49 percent in September.

The average weighted new fixed deposit rate grew to 8.98 percent in October from 8.72 percent in September. (Colombo/Dec23/2019)

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