ECONOMYNEXT – Sri Lanka’s banks have been directed by the central bank to extend a Covid-19 debt moratorium for six months from October 2020 to March 2021 as airports remain closed.
All Coronavirus affected businesses including tourism were asked to apply for a moratorium until the end of September 2020, and banks have said around 30 to 40 percent of their loans books were affected.
“Considering the ongoing travel restrictions, disruption to economic activities and representations made by the Ministry of Tourism and related agencies, CBSL requests licensed commercial banks and licensed specialised banks (hereinafter referred to as licensed banks), to provide a debt moratorium to COVID-19 affected businesses and individuals in the tourism sector (hereinafter referred to as the Scheme) for a further period of six months…” the bank supervision unit told commercial banks.
“However, licensed banks may offer any additional concessions to borrowers in a way that the overall benefits to borrowers are not less than the benefits offered under this Circular.”
The central bank said the proposed scheme would not “cause an undue level of stress or threaten the stability of the banking system considering the lower level of exposure to the tourism sector by licensed banks, the capital buffers maintained by licensed banks and measures proposed by the Ministry of Tourism to revive the tourism industry.”
Banks have to convert the capital and interest due from October 2020 to March 2021 to a long term loan. They can be recovered from July 2021 onwards.
The interest rate for the loan would be the one year Treasury bill yield of April 2021 plus one percent.
“The repayment period of such converted loan shall be minimum of two years,” the central bank said.
“However, if the borrower wishes to repay the loan in less than two years or if the licensed bank wishes to offer a longer period, licensed banks may facilitate such requests,” the central bank said.
“Licensed bank and the borrower shall agree on the interest rate, if the repayment period varies from the stipulated two-years period.
“Licensed banks shall waive off the accrued and unpaid penal interest as at 1 October 2020, if any, on performing and non-performing loans considered under this Circular. Penal interest shall not be accrued and charged during the moratorium period.”
Loans given the moratorium are all performing credit facilities as at 18 April 2019 or a later date, granted to eligible borrowers and non-performing loans re-structured under Circular No. 05 of 2020 issued on 27 March 2020.
The following borrowers could ask for the extended moratorium.
(a) Businesses and individuals who are affected by COVID-19 and registered with:
i) Ministry of Tourism
ii) Sri Lanka Tourism Development Authority
iii) Agencies under Sri Lanka Tourism Development Authority
iv) Local Government Authorities such as Pradeshia Sabha, Urban Council or Municipal Council. However, such businesses shall now register with the relevant institutions referred in i), ii) and iii) above
v) Department of Cultural Affairs
vi) The Hotels Association of Sri Lanka
(b) Employees of eligible businesses who are affected by COVID-19. In the case of such employees, the registration of the business with the relevant institutions referred in (a) above shall be considered sufficient.