Banks bombarded with loan applications
Sri Lankan banks have received thousands of applications for loan moratoriums and refinancing facilities declared by the Central Bank (CB) on March 25.
A top commercial banker noted that so far they have received about 45,000 applications for the moratorium on existing outstanding loans and the refinancing facility targeting a working capital loan at the annual interest rate of 4 per cent for eligible customers. He said the applications are requesting Rs.10 million to Rs.25 million and are now being processed. “The CB has asked to give priority to these applications which are seeking a moratorium for obligatory expenses such as electricity, water bills and salary payments,” he explained.
These concessions were introduced to support COVID-19 hit businesses including self-employment businesses and individuals. The bank CEO said that before the coronavirus hit, his bank used to get about 4000 loan applications for a month. Currently, this is a little over 11 times the normal amount, he added.
The loan for working capital or investment purposes is available provided that the borrower submits a credible business plan not exceeding Rs. 25 million per bank per borrower and Rs. 10 million per other financial institutions per borrower or two months working capital whichever is higher, based on the requirement for a working capital cycle. Such loans are to be repaid over two years at an interest rate equal to 4 per cent p.a. The CB will subsidise interest costs up to 4 per cent for licensed banks and up to 7 per cent for other financial institutions as a rebate. Also the CB investment purpose loan facility is granted only by banks and only for performing borrowers not exceeding Rs. 300 million per bank per borrower to expand business activities. Such loans shall be repaid over five years.
But there are many unhappy customers, such as one businessman running a software outfit, and another who has an agricultural farm.
“As an IT company I talked to my bank (which is a private commercial bank) for 4 per cent business interruption loan, but the manager said we need to give guarantee of a property,” he told the Business Times.
The agricultural entrepreneur said his bank had informed that there is no provision for working capital loans for the agriculture sector, although the CB directive provides for this sector too.
In the same conditions, the CB has requested all financial institutions to extend the overdraft (OD) period of cheques until April 30.
“On the OD, the manager said it’s allowed only for property-based OD and not cash-margin based ODs,” the IT businessman said.
Bankers say they have to be prudent. “The credit risk is taken by the bank and the bank has to pay the amount to the CB even if the customer pays the bank or not,” another banker explained. He quoted an IT business as an example. “If it is an IT business and the applicant has nothing to show – not even a business plan – we cannot give a loan for his salary payments.”
Each big bank is allowed some Rs. 8 billion even though the CB hasn’t stipulated it openly. Another top CEO of a bank told the Business Times that he had been allocated Rs.5 billion and as of Wednesday he had received loan applications worth Rs.30 billion.
Clearly there is a mismatch. Bankers say that it will be in the best interest of all parties if there is more clarity in deploying the loans.
In the tourism sector, too hotels have not got their loans and are struggling to pay the April salary which has been delayed.