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Saturday October 1st, 2022

Sri Lanka central bank announces credit relief for third Coronavirus wave

ECONOMYNEXT – Sri Lanka’s central bank has announced credit relief as a third Coronavirus wave gripped the country involving restructuring performing loans on request at Treasury bill plus one percent.

“With the outbreak of the third wave of COVID-19 in Sri Lanka, requests from many concerned parties and Government Authorities were received by the Central Bank of Sri Lanka (CBSL) to consider granting certain concessions to the affected borrowers/customers,” the regulator said.

“Further, licensed banks may offer additional concessions to businesses and individuals affected due to the third wave of COVID-19, on their request, in a way that the overall benefits to the borrower/customer are not less than the benefits offered under this Circular.”

The full statement report is reproduced below

CONCESSIONS FOR COVID-19 AFFECTED BUSINESSES AND INDIVIDUALS

With the outbreak of the third wave of COVID-19 in Sri Lanka, requests from many concerned parties and Government Authorities were received by the Central Bank of Sri Lanka (CBSL) to consider granting certain concessions to the affected borrowers/customers.

Accordingly, with a view to meeting the challenges faced by businesses and individuals due to the third wave of COVID-19, CBSL requests licensed commercial banks and licensed specialised banks (hereinafter referred to as licensed banks), to extend the following concessions to COVID-19 affected businesses and individuals (hereinafter referred to as the Scheme).

Further, licensed banks may offer additional concessions to businesses and individuals affected due to the third wave of COVID-19, on their request, in a way that the overall benefits to the borrower/customer are not less than the benefits offered under this Circular.

Accordingly, this Circular is issued to give effect to the Scheme in a consistent manner across all licensed banks, with a view to easing the burden on the borrowers of banks that are affected by the current disruption in business /income generating activities to duly repay their loans.

1. Deferment or restructuring of existing credit facilities in the performing category as at 15 May 2021

(a) Licensed banks shall defer recovery of capital, interest, or both of the existing credit facilities of borrowers who are affected by the third wave of COVID-19, on case-by-case basis, during the period up to 31 August 2021, considering the financial difficulties faced by the eligible borrowers, such as loss of job, loss or reduction of income/salaries or sales, closure of business, etc.

(b) The deferment of capital, interest or both shall be granted for one or more of the existing credit facilities granted in Rupees or in foreign currencies, considering the financial difficulties and repayment capacity of the eligible borrowers.

(c) In the case of any Rupee facilities considered for the above deferment, licensed banks may charge an interest rate not exceeding the 364-days Treasury Bills auction rate as at 19 May 2021 plus 1 per cent per annum (i.e., 5.18% + 1% = 6.18% p.a.), for the deferred period and only on the amount deferred amount. In the case of foreign currency loans, licensed banks may charge a concessionary interest rate considering the prevailing low interest rates.

(d) Alternatively, licensed banks may restructure the existing credit facilities over a longer period, considering the repayment capacity of the borrower and an acceptable revival plan. In this case, the licensed bank and the borrower shall agree on an interest rate, considering the prevailing low interest rates.

(e) Licensed banks shall extend the due dates of revolving credit facilities, including but not limited to facilities such as working capital, pawning, temporary overdrafts, short-term trade finance facilities, etc., during the period up to 31 August 2021, provided such due dates fall during 15 May 2021 to 31 August 2021. Licensed banks may charge interest for the deferred period and only on the amount deferred amount as stated in I (c) above.

(f) Penal interest shall not be accrued or charged during the concessionary period, i.e., 15 May 2021 to 31 August 2021.

(g) Licensed banks shall accommodate any request from affected borrowers to delay the due dates of loans repayment by few days (maximum 10 working days) due to the ongoing travel restrictions, without deferring or re-structuring such facilities. Licensed banks shall not charge any additional interest or other charges for such delay.

(h) Borrowers who are currently enjoying deferment of lease repayments under Circular No. 03 of 2021 issued on 13 March 2021 or moratorium under Circular No. 04 of 2021 issued on 19 March 2021 are not eligible for concessions provided above.

2. Concessions for credit facilities in the non-performing category as at 15 May 2021

(a) Licensed banks may reschedule the existing non-performing credit facilities as at 15 May 2021, over a longer period, considering the repayment capacity of the borrower and an acceptable revival plan. In this case, the licensed bank and the borrower shall agree on the terms and conditions including the interest rate.

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