Set up dedicated credit lines for construction - CIOB | Daily News

Set up dedicated credit lines for construction - CIOB

Panellists at the event. Picture by Dinesh Perera.
Panellists at the event. Picture by Dinesh Perera.

Ceylon Institute of Builders President Dr Rohan Karunaratne called on stakeholders to come together to set up dedicated credit lines for the utilization of the construction sector. They further noted thatthe government’s decision to stall or halt future construction projects was short-sighted and against the long term interests of the country.

Dr Karunaratne was speaking on March 31 at the Taj Samudra at an event exploring the Foreign Exchange Crisis through the perspective of the construction sector. Dr Karunaratne noted that currently over half of the industry had come to a complete standstill. He noted that even major contractors were facing problems in receiving payments and/or are facing uncertainty in pricing future projects. Over 75% of inputs for the sector are imported, mostly from either China or India. With the mutually beneficial nature to those nations’ exports and for forming deeper ties with Sri Lanka it was suggested that the industry go with one voice to secure dedicated credit lines from the respective banking institutions in those countries. Dr Karunaratne said that the government had decided to forgo unessential expenditure inclusive of construction and that this would cause great uncertainty and future pain points. He warned that there would be a dearth of new buildings in time to come. He said, “With no new construction for the next 2 years the repercussions could be far and wide.”

Dr Karunaratne accused the construction goods trading sector of hoarding materials in anticipation of being able to reprice the stock at a later date. He noted that the government should step in and stop this artificial shortage. Dr Karunaratne called on all stakeholders to act expeditiously to fix the issue. Commercial Bank Chairman Ananda Jayaweera noted that the fiscal constraints of the government meant that construction project rationalization was called for. Jayaweera noted that the legal consequences of delays to the sector would cause huge problems to the clients, contractors, and banking sector.

Jayaweera noted that projects with secured foreign credit lines should be able to continue but that those backed by the treasury would most likely have to be forestalled or at worst cancelled. Jayaweera described the banking sector as having undertaken huge risks in terms of cash flow by backing the construction sector. The long term, low payback, and high leverage nature of the industry has put the entire banking sector at risk. With almost no new revenue streams a considerable number of projects are at risk of defaulting. People’s Bank Chairman Sujeewa Rajapakse noted that his entity is facing considerable exposure to the construction sector. He noted that the sector accounts for over 10% of GDP and therefore the impact to the entire economy of failure could be catastrophic.

Rajapakse noted that even the People’s Bank Head Office building was facing issues with the contractor happily willing to pay the penalties to get out of having to complete the project. Rajapakse characterized his bank’s exposure to the sector as ‘being up to the maximum possible limit’ and noted concerns with sleepless nights as he was dealing with depositor funds.



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