- Working capital loan needed immediately, not in May
- Banks say they are in compliance and supportive
By Skandha Gunasekara
Despite the Government passing a number of regulations and imposing restrictions on the financial sector, complaints have been received that the banks were not complying with some of these regulations, such as providing working capital loans in a timely manner.
When The Sunday Morning inquired, Central Bank of Sri Lanka (CBSL) Governor Prof. W.D. Lakshman said that regulations are being followed “to a large extent”.
“They (banks) are following the regulations to a large extent and our Bank Supervision Department is going after them, but there are a few problems,” he stated.
On 27 March, the CBSL issued Circular No. 5 of 2020 titled “Rupees 50 Billion, Six-Month Re-Financing Facility to Support Covid-19 Hit Businesses including Self-Employment and Individuals” stipulating a number of regulations to be adhered to by financial institutions (banking and non-banking) as a measure to provide relief, including concessions for loans.
Among these concessions are a debt moratorium (capital and interest) and a working capital loan at the interest rate of 4% p.a. for eligible customers. The circular stated the following under the third section.
Concessions for Existing Performing Loans as at 25 March 2020
(i) Upon a communication by a borrower requesting concessions under this scheme on or before 3 April 2020, the financial institutions shall offer a debt moratorium for the period as given below in respect of all eligible rupee and foreign currency term loans.
(a) A six-month debt moratorium on the leasing rentals of all three-wheelers, school vans, lorries, small goods transport vehicles, and buses and related assets such as motorbikes and taxies operated by the self-employed/owners.
(b) A debt moratorium until 30 May 2020 on personal loans granted to all private sector non-executive employees.
(c) A three-month debt moratorium for all personal loans and leasing where the granted amount is less than Rs. 1 million.
(d) A six-month debt moratorium for affected industries in small and medium enterprises, tourism, apparel, plantation, IT, and related logistic service providers.
(e) A six-month debt moratorium for all other eligible businesses/sectors specified under 2 (i) above.
(ii) Financial institutions shall extend the existing tenure of loans eligible for debt moratorium by the respective moratorium period.
(iii) Permanent overdraft facilities falling due for settlement or maturing or are reviewed during the period up to 25 March 2020 shall be extended up to 30 September 2020. However, in the case of temporary overdraft facilities as at 25 March 2020, the expiry shall be extended by two months for eligible borrowers. Interest rate on such facilities will be capped at 13% during the extended period.
(iv) Eligible trade finance facilities falling due for settlement or maturing or were under review during the period up to 25 March 2020 shall be extended up to 30 September 2020.
(v) Pawning facilities falling due for settlement or maturing during the period up to 25 March 2020 shall be extended up to 30 September 2020.
Immediate need not satisfied
However, Sri Lanka Trade Development Council (SLTDC) Chairman Roshana Waduge charged that while banks were accepting requests for working capital loans, the processing and determination of eligibility for the loans would be delayed till May.
“There is an issue with the disbursement of working capital loans that are to be given at a concessionary rate. The banks are calling for requests for such loans, but have said that they can evaluate and confirm eligibility for the loan only sometime in May. This defeats the purpose of the Government instructing banks to give loans to support Covid-19-hit businesses. Money is needed immediately. By May, it would be too late,” he said.
According to Waduge, the issue is prevalent in both state and private commercial banks. He said that they had written to the President and Prime Minister highlighting this issue and also requesting that the relief package be available to the entire business community and not limited to only a few sectors.
“We have written a letter regarding this to the President and Prime Minister. We also pointed out that the moratorium on loan repayments and other relief measures provided by the Government should be given to the entire business community and not just a select few sectors. This pandemic has affected everybody, from the small tea shop owner all the way up to big conglomerates.”
However, CBSL Bank Supervision Department Additional Director Rukshana De Silva Jayatillake told The Sunday Morning that they were unaware of any shortcomings of the banks in providing these relief measures.
“What I understand is that the requests are coming to the banks and the banks are evaluating them. Depending on the urgency and how fast they could deliver, the banks will disperse. In fact, we understand that the banks are considering giving loans not only under the Government’s refinancing facility, but under their own loans schemes as well,” she said.
When asked specifically whether disbursing in May doesn’t defeat the purpose of the loans, to which she said that she would look into the matter to address the issue.
“We will see what can be done. We haven’t got any complaints. We have instructed banks to start processing requests as soon as possible because it is working capital and it needs to be given as soon as possible.”
She went on to say that the banks are taking measures to follow other instructions by the CBSL. Accordingly, the banks have taken all the necessary steps to comply throughout their branches and the CBSL has been in contact with the banks. It is observed that things are falling into place, she said.
She further said that the banks are in the process of upgrading their systems and taking other steps to facilitate the concessions to consumers.
“They (banks) have been instructed and we are closely following up throughout their branch networks. System modifications have to be done to cater to and facilitate concessions – those are being done. And we believe that soon, everything will fall into place,” she reiterated, adding that in most cases, they have and are following regulations and that “no one has objected”.
However, she said that one issue facing the banking sector is the imposition of curfew, as it has resulted in fewer bank staff members tending to their duties.
“With the curfew, there is a limited number of staff reporting (to work). But we are in close contact with the banks to ensure things will fall into place throughout the network. We have asked banks to remain open on days that the government sector credits salaries so that it (salaries) can be facilitated to government sector workers,” Jayatillake said.
She also said the regulations laid out by the CBSL seek to benefit both individuals as well as companies. “Yes, it is catering to the individuals as well as the corporates who will find it difficult and who are directly affected.”
NBFIs’ non-essential status problematic
With regard to the non-banking financial institutions (NBFIs), the CBSL said such entities not being categorised as an essential service has caused problems.
A senior official in CBSL’s Department of Supervision of Non-Bank Financial Institutions said that due to the curfew, many branches of financial institutions remain closed.
“Financial institutions, unlike banks, have not been able to open all branches. That is the issue they are facing right now. Only in non-curfew areas are the branches open. They have not been listed as an essential service, so they’re finding it to be a problem to open branches in curfew-imposed areas,” the senior official said.
He went on to say that NBFIs are thus far complying with CBSL’s regulations.
“All regulations the Government has issued are being complied with by the financial institutions. We have not received any reports of noncompliance. The only issue is that they cannot function in curfew-imposed areas.”
Local banks adhere
Meanwhile, Sampath Bank PLC asserted that it has begun following the regulations. “We have initiated the regulations and published for the customers three modes of responding to their respective branches. We have given an email address plus a number which can be reached through Viber and WhatsApp as well, just for customers to make a request.
“Based on the request, the bank will look into the facilities that are already there and act according to the guidelines that are given by the Central Bank,” Sampath Bank Senior Deputy General Manager – Consumer Banking Tharaka Ranwala told The Sunday Morning.
When queried as to whether the bank was supportive of the regulations, Ranwala responded in the affirmative and said that it was in fact something small and medium-sized enterprises (SMEs) needed.
“If you really look at it, even when the Easter Sunday attacks happened, there was a moratorium issued by the Government and all banks actually complied with it. This also we see as something similar and given the current crisis, which I don’t think anybody in the world has planned for, this is something that is needed for all SMEs, especially the companies that are part and parcel of the development of the country. Giving the moratorium, (on) both capital and interest for the three months that has been stipulated is something that needed to be done in a timely manner,” he said.
Going one step further, he said that Sampath Bank was even ready to help their clientele overcome this tough period with financial and business advice.
“Banks are ready to support the businesses by providing advice as well. There may be matters that even those companies would not be fully geared for, so we are more than willing to help them out using the expertise we have in different sectors,” he added.
In addition, senior sources at National Development Bank PLC (NDB) said that they too are implementing the regulations of the CBSL.
“The regulations are being followed strictly. We have to comply with the Central Bank’s regulations.”
Senior sources went on to say that banks that have close relationships with their clients would find it easier to work and resolve any issues which arise from the current crisis.
“If you have a strong portfolio where you know the client well, then you can work with the client and overcome any hurdles.”
NDB sources also stated that now was the time for businesses and entrepreneurs to look to a future post-Covid-19 and strategise.
