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Economic crisis: No decision yet on debt moratoria

19 Jun 2022

  • Uncertainty looms over moratorium for farmers
  • Banks want sound policies from Government
  • SLTDA finds alternatives to repay sector debt
By Vinu Opanayake State banks are awaiting policy clarity and consistency from the Government on debt moratoria to decide expansion and extension of the facilities offered as a relief measure, The Sunday Morning learns. The debt moratorium that was providing breathing space mainly for the local tourism sector since the Easter Sunday attacks in April 2019 is coming to an end this month. Amidst the ongoing economic crisis, authorities are now discussing the potential extension of these moratoria, while Prime Minister Ranil Wickremesinghe, who is also the Minister of Finance, is planning to extend the facility to the farming community, it is learnt.  The Sunday Morning spoke to an official from the Central Bank of Sri Lanka (CBSL), who on conditions of anonymity said that while talks were being held between the Central Bank and other authorities and stakeholders, no decision had been arrived upon officially in terms of extension of existing moratoria and addition of new sectors. The official stated that the Central Bank would announce its stance when the discussions were finalised and added that till then they were unable to divulge any information. Meanwhile, Prime Minister Wickremesinghe last week met with representatives of commercial banks to discuss the loans requested by rice mill owners. During the meeting, the Prime Minister was informed by the Minister of Trade, Commerce, and Food Security Nalin Fernando that while the banks were not dispersing the requested loans sufficiently, hoarding of rice stocks was also taking place. The Prime Minister had then reportedly instructed the Central Bank and Treasury officials to monitor the banks’ lending policies, while ensuring that the Bank of Ceylon’s loans were provided in line with the Government’s financial policies. Two weeks ago, Wickremesinghe in Parliament stated that loans of all farmers would be written off entirely. However, the Central Bank did not comment on this. While attempts to contact Minister of Agriculture Mahinda Amaraweera proved futile, a spokesperson from the Ministry said that discussions were underway with the Ministry of Finance and the CBSL to provide some financial relief to farmers who had been affected by the prevailing crisis which had created a food shortage in the market.  “We are still discussing and the target groups are yet to be identified, but we will certainly assist farmers financially. Whether this assistance will be limited to rice farmers or whether it will be extended to other crops is something we cannot confirm now,” the spokesperson stated.  The banking sector is awaiting sound and stable policies from the Government on whether the moratoria are to be extended and/or new moratoria provided for new sectors.  A senior official from a leading private commercial bank said that there should be clarity from the regulator (CBSL) and the Government, which drives the economy, for the banking sector to decide on a course of action in this regard.  The official said that based on those plans, the banks could decide on the moratoria, for how long they would be given, the conditions, and the basis of their provision. The banker also said that the sector needed to study each industry and its recovery depending on the Government’s plans for the economy to decide on the duration of any potential moratoria. “We need to look very strongly at what we are going to do in the short to medium term,” the official said, adding that there were several factors impacting each sector. “What is going to be important is for us to have a clear understanding as a banking sector, to find out how those factors are going to evolve in the short, medium, and long term.” Officials from other commercial banks who spoke to The Sunday Morning echoed similar sentiments, noting that they were all looking towards the policies by the Government and the CBSL with regard to granting moratoria.  Sri Lanka Tourism Development Authority (SLTDA) Chairperson Priantha Fernando told The Sunday Morning: “The tourism moratorium extension is being discussed with the banks now and it was also discussed with the Central Bank. We are trying to mediate and arrange meetings with the banks to see what kind of compromise we can reach.” He noted that the Central Bank had advised SLTDA to have discussions with the respective commercial institutions. “It is too early to say by how long the moratorium will be extended as it entirely depends on the banks and stakeholders. We are merely trying to mediate. We are trying to explain the current situation on their behalf, but the final call is with the institutions,” Fernando added. He also stated that the Government was in no position to intervene regarding these issues right now given the crisis it was in.  However, Fernando stated that SLTDA was looking to attract foreign investors to acquire shares of local hotels to help them secure funding to repay their debts as there were about Rs. 480 billion worth of loans taken by the tourism industry and the sector was in no position to repay these loans once the moratorium is lifted end June. Fernando said that out of the 47,000 rooms available in Sri Lanka, there was about a 17% occupancy rate, which was not sufficient for the larger hotels to break even. He said that foreign investors had shown interest in investing in the tourism sector, and added that if Foreign Direct Investments (FDIs) were brought into the hotels, then two issues could be addressed – the foreign exchange shortage and the inability of the tourism sector to repay loans. Moreover, he noted that FDIs in the tourism industry had seen a massive decrease and the SLTDA was looking for investments in its resources in Passikudah, Kuchchaveli, Kalkudah, and Yala to earn a return. The CBSL extended debt moratoria by nine months from 1 October 2021 until 30 June 2022. The initial moratoria were issued by the CBSL in April 2019 upon consideration of the Easter Sunday attacks.  According to the latest directive of the CBSL, licensed banks can convert capital and interest falling due during the moratoria period commencing from 1 October 2021 to 30 June 2022 into term loans. Banks can amalgamate the capital and interest falling due during the previous moratoria granted, with amounts falling due from 1 October 2021 to 30 June 2022.   


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