The assurance given by President Ranil Wickremesinghe to the business community that he would look into the possibility of a moratorium on their bank loans in order to protect businesses and provide relief to business personnel no doubt would have made owners of businesses now in the doldrums after having borrowed heavily from the banking system heave a huge sigh of relief. Today gloom and doom is the lot of most businesses which have been hit on multiple fronts the latest being the electricity tariff increase. Most businesses, indeed, have already thrown in the towel, unable to fight the unequal odds. Hopefully, the President's proposal would throw up some hope among those still surviving and hold on. For a complete collapse of business and commercial activity would be a disaster and not augur well for the prospects of obtaining foreign economic assistance.
Addressing female entrepreneurs of the Women's Chamber of Commerce and Industry at a Colombo Hotel on Wednesday the President said that the Central Bank had been notified to look into the possibility while at the same time ensuring the protection of the banks. The President inter alia said; “The current inflation is a problem every business has to face. If we continue with these decisions, we can reduce inflation. Bank interests can be reduced. If decisions cannot be made inflation will increase”.
Almost each day on television talk shows business leaders and representatives of trade chambers are lamenting the difficulties they are forced to undergo as a result of the high interest rates charged by the banks which they claim have pushed their ventures to the point of collapse. This is no exaggeration. This is because the downturn suffered by the business community commenced from the Coronavirus pandemic days and the economic meltdown that followed had now dealt a crippling blow to business and commerce in a way that now it is a continuous battle for survival in a scenario where bank interests on loans have almost doubled. During the pandemic days, many concessions were granted to businesses due to the financial difficulties they had to undergo as a result of the economic slowdown. It is not known, now that the pandemic is behind us, if these concessions still apply at present. Leasing companies have already started seizing vehicles due to default in payment. One has to assume that banks too have ceased to extend concessions granted to businesses during the pandemic days. If so, coupled with the doubling of the interest rates they (banks) will only succeed in squeezing out all businesses out of existence. Very soon there is not going to be any commercial activity in the country with the shutdown of all supply chains and business ventures. The increase on the electricity tariff is going to make things all that much more difficult and as some business representatives have already opined will be the final nail in the coffin.
In fact, the banks rather than lose will stand to gain by reducing their interest rates or by extending the period of loan repayment. For, if businesses collapse banks would be left with no one to lend to. Besides, seizing assets of loan defaulters by way of parate execution is not going to help either, because the banks would have little or no means of disposing the assets with few or no buyers in the market due to economic hardship that has affected almost all sectors and individuals. In fact banks too will go the way of the rest with nowhere to invest its money. Therefore the best option is for the Central Bank to extend some form of concession to borrowers.
For, not only normal businesses but even exporters have been affected by the high interests on loans charged by the banks with the tea industry perhaps in the worst doldrums, with one factory owner complaining that the interest on his bank loan that was 8 percent have now shot up to 32 percent after the bank jacked up the interest rate. Ditto for the construction industry which is now virtually dead. How can those in the construction industry pay huge bank interests when the price of a bag of cement which was Rs. 900 a few months back is today Rs. 3,200. With the cost of every item up almost four-fold the price fetched a few months back and on top of this bank interests now being doubled how pray could any business, any industry survive?
Therefore the Central Bank should heed the proposal of the President and make a compromise. True, raising bank lending rates suddenly could be one way of stemming the economic downturn and stabilizing things. But the other side of the picture too should be taken into account. The economy cannot be improved in a vacuum at the expense of the well-being of business and industry. In any event, Central Bank Governor Dr. Nandalal Weerasinghe, has, himself, hinted that bank interest rates will be lowered in line with the stability of other economic indicators. The sooner we are back to the safe ground the better it will be for the health of business and commerce in the country.
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