ECONOMYNEXT – Sri Lanka’s central bank will discuss with banks and the Credit Information Bureau (CRIB) on borrowing difficulties faced by people who were unable repay their past loans due to the disruptions by COVID-19 pandemic, Governor Nivard Cabraal said.
The central bank in May this year advised banks not to decline loan applications from eligible borrowers solely based on an adverse CRIB record
The central bank also directed banks, in consultation with CRIB, to develop a reporting modality to report deferment/restructuring granted a proposed new scheme which will not have an impact on the credit score of borrowers in the future, or be negatively reflected in future CRIB reports.
However, some small and medium enterprises (SME) have complained that banks have been not helpful, despite the central bank’s advice.
“We have seen some people who are in the CRIB (black) list being given more credit by banks, while some are deprived of the loans,” Cabraal told a media briefing last week.
“If people were not able to repay their loans due to Covid pandemic, we have advised banks to consider their background and help. I expect to have a discussion with CRIB and banks on this in the near future.”
The central bank early this month extended concessionary loans for pandemic-hit businesses until March 31 next year.
Sri Lanka’s average non-performing loan (NPL) ratio is around 5 percent, but it has been on the rise and higher than the average in some banks due to pandemic-hit borrowers’ inability to repay their loans on time.
The CRIB was set up to allow financial institutions and others to check credit histories of potential borrowers and credit limits of customers based on their past records. In a capitalist system, some businesses fail.
A borrower with a clean record may get a prime rate or a higher un-collaterized credit limit while others may require stronger collateralization or higher rates. However in practice they had been used to lock customers out of the banking system, black list them and deny them credit.
“Does it mean that those who have got a credit score of C1 or less should be denied a loan facility? Not at all,” explained W A Wijewardene, the founder General Manager of the CRIB and former Deputy Governor of the Central Bank.
“The credit score reported to banks gives them some background information to put their loan applicants into different buckets and deal with them accordingly,”
“Once this ascertainment is made, the lending bank should offer a higher lending rate to such borrowers to take care of the risks involved. For instance, the best customers of banks, categorised as prime customers, are given loans at relatively low interest rates. (Colombo/Oct19/2021)