ECONOMYNEXT – Sri Lanka’s central bank is asking borrowers of bank loans to apply for a concession program it has put in place for businesses affected by the ongoing economic crisis that have already been aggravated by the COVID-19 pandemic before July 31.
The borrowers concerned must request the concession in writing or electronically no later than July 31, 2022 with their respective banks.
Banks are required to respond to applicants within one month of receiving the request.
“Given the current macroeconomic challenges… CBSL has requested licensed banks to grant appropriate concessions, for a period of six months, to borrowers whose incomes or businesses have been adversely affected due to the current macroeconomic pandemic and /or COVID-19 while preventing any undue stress on the stability of the banking sector,” a statement from the central bank read.
“These concessions are granted on a case-by-case basis depending on the future repayment capacity of individuals and the viability of businesses/projects.
CB said that if a borrower’s application is rejected, the bank concerned must inform the applicant of the reasons for the rejection.
The rejected borrower has the option of appealing such rejection to the Director of the Consumer Financial Relations Department of the Central Bank of Sri Lanka.
The central bank has also ordered licensed banks to set up post-COVID-19 stimulus units to help underperforming and non-performing borrowers affected by the pandemic.
Concessions are offered under eight categories.
Some features of the program include a 6-month grace period for performing loans, a licensed bank advised not to take collection action on non-performing loans, and repayment plans, among others.
a. Concessions for performing credit facilities: Borrowers may benefit from appropriate concessions (i.e., grace periods for principal or interest or both principal and interest or part of the principal or interest, restructuring of credit facilities or any other concession) for a period of six months.
b. Concessions for non-performing credit facilities: Borrowers can apply to reschedule existing non-performing credit facilities over a longer period. In addition, licensed banks are advised to suspend recovery actions against credit facilities classified as non-performing after 01.01.2020. Rice SMEs benefit from additional concessions subject to conditions.
vs. However, these concessions are not available for willful defaulters, defaults due to embezzlement, misuse of funds, mismanagement and/or fraud, and unviable projects.
D. Repayment plans: In the case of regular installment loans, the new monthly payment amount must not exceed the contractual value of the monthly payment of the existing loan. In the case of other credit facilities, the approved bank and the borrowers must mutually agree on an appropriate repayment plan.
e. The interest rate applicable to the amount for the concession period: In the case of rupee credit facilities, the interest rate to be charged on the amount for the concession period shall not exceed the last interest rate contracted (i.e., in the case of variable interest credit facility, the last revised interest rate as at 07.07.2022 or in the case of fixed rate credit facilities, the interest rate agreed at the time the facility was granted) or the rate current standing loan facility (i.e. 15.5%), whichever is greater. For foreign currency facilities, the approved bank and the borrowers must agree on the interest rate.
F. Possibility of prepaying loans without additional costs: Approved banks have been asked to consider, on a case-by-case basis, requests made by borrowers to prepay their credit facilities without paying additional costs. In the case of finance lease facilities, future interest recovery will also be waived. Borrowers who intend to avail themselves of the prepayment options must apply to the bank no later than 30.09.2022.
g. Approved banks have been instructed not to deny new loan applications from eligible borrowers under this program solely on the basis of unfavorable CRIB records.
Details of loan grants can be obtained at this link: https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/laws/cdg/bsd_circular_no_2_of_2022_e.pdf
Details on COVID-19 units: https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/laws/cdg/bsd_circular_no_1_of_2022_e.pdf
(Colombo/July 21, 2022)