People’s Bank curtails lending amidst COVID-19 pandemic
The state – owned People‘s Bank (PB) has trimmed its lending as it has to meet the salary bill requirements of its two biggest customers, the Ceylon Petroleum Corporation (CPC) and Ceylon Electricity Board (CEB), well-placed sources said.
The People’s Bank holds the Deputy Secretary to the Treasury (DST) account, which the government writes cheques on and the onus to meet these demands will be on the DST account at this state bank. So the largest salary bills are from the CEB and the CPC which will be issued through the DST account.
The CEB, which incurred a loss of Rs. 85 billion last year, annually spends more than Rs.12.5 billion to pay salaries and other payments to its 15,407 employees. While data on CPC salaries aren’t available, its finance cost was Rs. 12 billion in 2018. “These bills are large and the People’s Bank may share it with the Bank of Ceylon,” a source told the Business Times.
Adding to the woes, the bank borrowings of CPC are large. Borrowings from the Bank of Ceylon and People’s Bank increased from Rs. 338 billion in 2017 to close at Rs. 562 billion in 2018.
The slowing down in People’s Bank lending comes on the back of the banking regulator, Central Bank (CB) declaring a moratorium on capital and interest and a working-capital loan for businesses and individuals affected by the COVID–19 pandemic at an interest rate of four per cent per year to be paid back in two years, which includes a six months grace period.
The source added that the People’s Bank has received more than 4,000 applications for working capital loans and they have sent 1,400 (eligible) of them to the CB’s Regional Development Department for clearance. CB’s additional measures allow Domestic Systemically Important Banks such as People’s Bank to draw down their capital conservation buffers by 100 basis points to operate below their current Tier 1 regulatory minimums of 9.5 per cent.
The People’s Bank will be stretching this as the failed TFC (The Finance Company) compensation payments off the Deposit Insurance and Liquidity Support Scheme also will be made through the People’s Bank as it is the agent bank appointed by the CB for this purpose.
Compared to a growth of 5.6 per cent in the banking industry, People’s Bank recorded a growth of 3.1 per cent as at 31 December 2019. The consolidated balance sheet expanded by 7.4 per cent to reach Rs. 2,049.8 billion, whilst shareholders’ funds increased by 5.1 per cent year on year to reach Rs. 119.2 billion.