Sri Lanka central bank looking at third wave credit relief: Deputy Governor

Sri Lanka’s central bank is looking at giving some relief to borrowers who are having difficulties in making loan repayments due to a third Coronavirus wave, though it may not be a sweeping moratorium, Deputy Governor Yvette Fernando said.

“We have started discussions with banks and finance houses association to see how and what kind of facilitation we can give the borrowers, because we understand there can be payment delays because of closure of certain businesses,” Fernando told reporters on May 20.

“As the CBSL we are not in a position to continuously tell banks to continue these moratoriums. But based on the recent situations, we have started discussions.”

She said tourism and passenger transport sectors were given extra relief from the original Covid-19 moratorium.

Not all financial institutions were in the same position to give relief, she said.

“They have agreed to give some kind of facilitation, but we are also not looking at a complete moratorium at this point, because I think we cannot do that, from the point of view of the banking and finance company side also” Fernando said.

“We have to understand that this sector, companies are at different levels. All companies don’t have the capacity to go through these moratoriums completely.

“So the discussions are ongoing and we will be able to announce something for the affected burrowers. We would like to ask burrowers who can and in a position to pay, to pay the loans. Because your delaying the loan there going to be additional costs”

Banks and finance companies also had to pay depositors and maintain capital buffers. The central bank as the regulator had to look at two types of customers, borrowers as well as depositors.

“We have been in moratoriums for about one year,” Fernando explained. “As the CBSL, our responsibility is for two sides. The ones who take the loans and one who gives money for loans.

“Because, if something goes wrong, it can lead to a major problem. It is not that we look only at banks. Whenever there is a situation like this, we discuss and do the most practical thing to do. That doesn’t mean we take the side of the bank.

There had been a widening of interest margins of banks, due to deposits rates falling faster than lending rates, though lending rates are much lower than they were a year ago.

“We know when the interest rates are coming down it is quite fast to reduce the interest rates on deposits but there is going to be a lag defect on the interest adjustments of the loans,” Fernando said.

“So this gap has widened a little during the last.”

Banks had made provisions for bad loans with the profits. Bank were keeping part of the profits as capital and distributing some to shareholders. (Colombo/May21/2021)

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