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Sri Lanka to start more credit schemes with 1.0-pct central bank money

ECONOMYNEXT – Sri Lanka’s central bank said it will issue more new money to banks at 1.0 percent to give loans under credit schemes which will take the total up to 150 billion rupees , while also cutting a reserve ratio releasing another 115 billion rupees to the credit system.

The central bank said 27.5 billion rupees had already been given by banks from a 50 billion rupee re-finance facility introduced earlier.

More funding will be provided to banks against a “broad spectrum of collateral, on the condition that LCBs in turn will on-lend to domestic businesses at 4.00 per cent, while ensuring the greatest possible distribution of this facility,” the central bank said.

The central bank cut the reserve ratio and announced the credit schemes hours after President Gotabaya Rajapaksa slammed the monetary authority after summoning Governor W D Lakshman and senior officials to his office for not raising a new money financed credit to 150 billion rupees.

“This scheme along with the existing refinance Scheme will provide Rs. 150 billion in total to the businesses affected by the COVID-19 pandemic,” the central bank said.

“Operating instructions on these new credit schemes will be issued in immediate due course.”

Contractors of government projects will be given loans on a government guarantee equal to contract values of projects which were in arrears under another central bank re-financed credit scheme.

The new injections come as foreign reserves have dropped over a billion US dollars to 6.4 billion US dollars since rate cuts and liquidity injections began.

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Sri Lanka President slams central bank over Rs150bn quasi-fiscal re-finance

The full statement is reproduced below:

Central Bank of Sri Lanka Implements New Credit Schemes to Support the Revival of the Economy

Growth of the Sri Lankan economy has fallen to dismal levels over the past few years, and the impact of the COVID-19 pandemic may result in severe stress on economic and financial system stability in the period ahead unless immediate remedial actions are taken. In this context, in support of the government’s efforts to revive the economy, the Monetary Board of the Central Bank of Sri Lanka, at its meeting held on 16 June 2020, decided to introduce new credit schemes under the Section 83 of the Monetary Law Act No. 58 of 1949.

Accordingly, in addition to the already disbursed Rs. 27.5 billion under the refinance scheme introduced on 27 March 2020, the Central Bank will provide funding to Licensed Commercial Banks (LCBs) at the concessionary rate of 1.00 per cent against the pledge of a broad spectrum of collateral, on the condition that LCBs in turn will on-lend to domestic businesses at 4.00 per cent, while ensuring the greatest possible distribution of this facility.

This scheme along with the existing refinance Scheme will provide Rs. 150 billion in total to the businesses affected by the COVID-19 pandemic.

In addition, the construction sector enterprises will be provided with a facility to borrow from LCBs, using guarantees issued by the government equivalent to the amount due on account of contracts carried out in the past, under a new dedicated credit scheme funded by the Central Bank and made available at the aforementioned concessionary rates.

Operating instructions on these new credit schemes will be issued in immediate due course.