Banks asked to prioritise requests made by MSME sector

With a view to meeting the challenges faced by businesses and individuals due to the new surge in COVID-19 outbreak in Sri Lanka, the Central Bank of Sri Lanka (CBSL) has directed licensed commercial banks and licensed banks to extend the debt moratorium to COVID-19 affected businesses and individuals for a further period of three months till 31 December 2021.

This directive to the licensed commercial banks was issued on Wednesday, September 1.

Accordingly, this circular is issued to give effect to the scheme in a consistent manner across all licensed 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 further said: “The latest extension is not applicable for borrowers in the tourism sector who are eligible to obtain concessions granted for the tourism sector separately. (Tourism sector debt moratorium expires on 30 September).Banks are required to ensure deferment or restructuring of existing credit facilities in the performing category as of 1 September.”They can defer recovery of capital, interest or both of the existing performing credit facilities of borrowers who are affected by COVID-19, on case-by case basis, during the period up to 31 December, considering the financial difficulties faced by such borrowers, including loss of job, loss or reduction of income/salaries or sales, reduction or impairment business operations or the closure of business, etc.””Banks have been requested to prioritise accommodating the requests for concessions made by borrowers in the Micro, Small and Medium Enterprises (MSME) sector.””The deferment of capital, interest or both should be granted for one or more of the existing credit facilities granted in rupees and/or in foreign currencies, considering the financial difficulties and repayment capacity of the eligible borrowers. They can amalgamate the amounts fallen due during the previous moratorium/deferment schemes (i.e., capital, interest and applicable interest for the respective moratorium/deferment period on the respective moratorium/deferred amount) and the amounts falling due during the current scheme (i.e., capital and interest) in to one new loan.””Banks may charge an interest rate commencing from 1 September, on the new loan referred above and for the agreed period of repayment based on a separate loan amortisation schedule for this period.””In the case of rupee facilities considered for the deferment, banks may charge an interest rate not exceeding the latest available 364-days Treasury Bills auction rate as of 31 August plus 1% per annum (i.e., 5.93% + 1% = 6.93%).””In the case of foreign currency loans, licensed banks may charge a concessionary rate of interest. Further, interest for the remaining capital outstanding balance, excluding the deferred capital amount of the existing facility will continue to accrue at the contracted interest rate after the end of the deferment period.””In the case of instalment loans, including lease facilities, a licensed bank and the respective borrower need to agree on a repayment period commencing from 1 July 2022, up to six months, to settle the new loan referred to above, considering the financial difficulties faced by such borrowers. The borrower may commence the repayment of the new loan at an earlier date, if the borrower wishes to do so. However, the borrower shall commence repayment of existing facilities from 1 January 2022.””In the case where a borrower requests for a period beyond six months to settle the new loan, the borrower and the bank need to agree on a concessionary interest rate beyond the six-month period.””Banks should explain the benefits of commencing early repayment and the implications of extending the repayment period to the borrower, in order to encourage the borrower to commence early repayment of the deferred amount.””Alternatively, banks may restructure the existing credit facilities, on a case-by-case basis, over a longer period, considering the repayment capacity of the borrower and an acceptable revival plan. In this case, the licensed bank and the borrower shall agree on an interest rate, considering the prevailing low interest rates,” the Central Bank said.