NBFIs accorded flexibility to help COVID-19 -hit businesses and individuals
The Central Bank has relaxed regulatory requirements and granted liquidity support for Non-Bank Financial Institutions (NBFIs) which are now under the immense pressure of COVID-19 triggered problems.
It has accorded flexibility to Licensed Finance Companies (LFCs) and Specialised Leasing Companies (SLCs) to support businesses and individuals affected by the deadly virus outbreak.
These measures include relaxation of regulatory requirements and granting liquidity support for needy LFCs and SLCs.
It is also aimed at relaxing provisions relating to loan losses, capital enrichment deadlines and allow NBFIs to draw down their liquidity protection shields amidst the economic slowdown from the corona virus and curfews.
These measures will create some breathing space by easing financial constraints for firms and workers, and crucially inject a portion of liquidity into the economy, an economic analyst who wished to remain anonymous told the Business Times.
However he noted that the debt moratorium stipulated by the government for borrowers will exert pressure on LFCs’ profitability, and is likely to lead to an asset-quality decline.
One of the measures is the reduction of maintenance of liquid asset requirement for time deposits, savings deposits and borrowings to ease liquidity stress faced by LFCs/SLCs due to sudden withdrawal of cash by depositors and delay of repayment of loan rentals.
An extension of one year will be given to NBFIs to comply with minimum core capital requirements. This will provide some breathing space to LFCs that have not met the relevant thresholds due to dislocation of the capital markets,
Deadlines on submission of statutory returns will be relaxed and LFCs/SLCs told to submit statutory returns to the Department of Supervision of Non-Bank Financial Institutions within two weeks of the commencement of normal business operations.
Further, arrangements have been made to provide liquidity support under Sri Lanka Deposit Insurance and Liquidity Support Scheme (SLDILSS) for LFCs with acceptable collaterals to facilitate urgent liquidity needs of such LFCs, in order to ensure the safety and soundness of LFCs.
Several other measures to enhance liquidity are being currently considered to inject more liquidity to the system. In addition to that, NBFIs are advised to take all possible measures to minimize their operational costs and to provide the benefits to the needy people who have been affected by the COVID-19 pandemic, and to revive their businesses.
Sri Lankan LFCs have been grappling with increasing non-performing loans, weakening profitability due to rising credit costs and subdued loan growth, several LFC CEOs said.
This was due mainly to the slow economic growth and restrictions on the importation of vehicles to defend the local currency – which affected growth prospects for vehicle finance, the key business of LFCs and SLCs.
The Central Bank will closely monitor the operations of all financial institutions with latest market developments, and take further measures appropriately in order to maintain the financial system stability of the country, officials said.