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Sri Lanka SME moratorium on request, will not stress banks: Deputy Governor

ECONOMYNEXT- Sri Lanka’s loan moratorium on small and medium-scale (SME) business loans will only be extended on request to those in need of it, and will not pressure banks and non-banking lenders, at top central bank official said.

He said it the share of loans that fall under the category of 300 million rupee SME loans that will get relief cannot be expressed as share of of total banking assets as it depended on several factors.

He said the moratorium would only apply to term loans and not to facilities like export and import credit.

“(The moratorium) is available only on the request of the customer, and that’s why we can’t estimate the impacts,” Nandalal Weerasinghe told reporters on Friday.

“Before January 20, those who want to avail of this facility will have to go to the bank and make a request.

“Depending on the request, people who are good on loans, I don’t think they will (ask), but if they want additional cash flow support only will they get that.”

He said the central bank’s expectation is for SMEs which are doing well to not request for the moratorium from banks and finance companies.

“They will not come and ask for this facility because this is a restructuring of the existing loan by extending it for 12 months,” Weerasinghe said. “It will not reduce the cost of borrowings.”

Weerasinghe said the central bank is yet to issue the circular on the regulation setting out the exact terms and method under law.

President Gotabhaya Rajapaksa and his brother, Finance Minister Mahinda Rajapaksa, had written to banks requesting the moratorium.

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Bankers have been worried that the moratorium will hit their cash flows as loan repayments are a top source of funds, along with deposits.

Bad loans (NPLs) among banks and finance companies have risen over the year.

Weerasinghe said the moratorium was limited in scope and duration to ensure banks would not be overly stressed and it was done with consultation.

“Central bank’s role is to ensure stability of the banking and non-banking financial sector,” he said.

“That’s why it was limited to SMEs for 12 months in consultations with banks. Looking at bank balance sheets, and impairments and provisions, the effects are minimal,” he said.

“On the other side, it will help revive the economy and reactivate some of the activities and give ease to some of the stressed businesses and we hope that will ease the NPL situation.”

However, while the moratorium is in force, new loan applicants would find the availability of funds has shrunk as banks accommodate the moratorium in their cash flows, Weerasinghe said.

On the other hand, despite the low availability of funds, interest rates will not rise due to the effects of monetary easing, he said.

“The monetary easing process will bring down interest rates further.” (Colombo/Dec27/2019)

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