The Central Bank of Sri Lanka (CBSL) on September 30 by way of directive instructed the Non-Banking Financial Institutions (NBFI) to provide a tourism-related debt moratorium for a ‘further period of six months commencing from October 1, 2020, to March 31 2021.’ The CBSL also reduced liquidity requirements on the sector and issued directives to encourage foreign currency inflows into the country.
The CBSL notes that the proposed scheme (an extension on debt moratorium) does not cause an undue level of stress or threaten the stability of the NBFI sector as there is limited exposure.
The eligible borrowers for the scheme shall be those registered with the relevant authorities. Regionally/provincially registered entities shall have to obtain registration with national bodies to be eligible.
Employees of registered institutions may also, avail of the moratorium on the back of their employers’ registration. Performing loans are eligible for the scheme. Application for the moratorium must be made before October 25.
Borrowers with the capacity to service loans are not expected to request for the moratorium. NBFIs will convert capital and interest due during the moratorium into a term loan. The loan shall be recoverable no earlier than July 2021. NBFIs shall waive penal or accrued interest up to October 2020. Circular No. 7 of 2020 providing 12-month moratorium to tourism-related vehicles is now revoked.
The lower liquid asset ratio to be held by licensed finance companies has been extended.
Accordingly, LFCS will have to maintain liquid assets proportionate to 6% of time deposits/certificates of deposits inclusive of accrued interest and 10% of savings deposits. Firms will also have to hold no less than 5% of liquid assets of their total outstanding borrowing. The lower liquidity requirements will be applicable for 6 months.
To encourage foreign inflows banks will not have to take any market risk of foreign currency transactions onto their own accounts. Banks will have to cover the transaction on the same day with either a bank, foreign counterparty, and or the CBSL. This was put into force by a banking directive dated September 30.
