At a time of economic hardships triggered by the COVID-19 outbreak creating financial crises, the Central Bank (CB) has implemented extraordinary regulatory measures to help banks to support affected businesses and individuals. The CB has also decided to set up a Rs. 50 billion, six month re-financing facility to implement the wide range of concessions [...]

Business Times

Central Bank eases bank rules to support COVID-19-hit businesses

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A picture is worth a 1000 words, according to an old adage. This picture at night of the Hilton Colombo hotel with a large number of empty rooms reflects the dire crisis the hotel industry is facing vis-à-vis COVID-19. Pic by M.A. Pushpa Kumara

At a time of economic hardships triggered by the COVID-19 outbreak creating financial crises, the Central Bank (CB) has implemented extraordinary regulatory measures to help banks to support affected businesses and individuals.

The CB has also decided to set up a Rs. 50 billion, six month re-financing facility to implement the wide range of concessions including a debt moratorium (capital and interest) and a working capital loan for those businesses and individuals.

These measures are aimed at relaxing provisions relating to loan losses, capital enrichment deadlines and allow banks to draw down their liquidity protection shields amidst the economic slowdown from the coronavirus and curfews.

“At present the whole market is crippled by a liquidity shortage and local firms are unable even to pay salaries to their employees,” eminent economist Dr. W.A. Wijewardena told the Business Times.

“Under these circumstances, some big firms have sent their workers home with half pay or no pay at all.” he said adding that by introducing these regulatory measures, the CB plans to inject liquidity to the system through banks.

Dr. Wijewardena noted that “it is a welcome response given the precarious situation we are in” and it will at least reduce the possible impact on large, medium and small businesses high rate of loss of employment and resulting domestic financial crisis.

These measures will create some breathing space by easing financial constraints for firms and workers, and crucially injecting a portion of liquidity into the economy.

In deciding these measures, the Monetary Board took note of the overall resilience of the banking sector especially due to the already built-up capital buffers and the current and future liquidity levels

It has also considered the potential upsurge in the rising trend in non-performing loans due to the inability of a majority of borrowers to service their loans as usual and extraordinary disruptions to the functioning of the economy.

The banks have been directed to facilitate smooth credit flows to the economy and COVID-19 affected borrowers to sustain their businesses in the immediate future.

Withdraw the requirement to classify all credit facilities extended to a borrower as non-performing when the aggregate amount of all outstanding non-performing loans granted to such borrower exceed 30 per cent of total credit facilities.

Banks will be permitted to give an extension of 60 days, to borrowers who are not entitled to any other concessions, to settle loans and advances which are becoming past due during March 2020 and not to consider such facilities as past due until the end of this 60 day period.

The requirement to enhance capital by banks up to end 2020 will be differed enabling it to meet the requirement, till end 2022.

 

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