Central Bank treading a thin line on continuation of moratoriums

By Sanath Nanayakkare

The Central Bank of Sri Lanka is not in a position to put pressure on commercial banks to offer moratoriums continuously as there was another side to the loan repayment saga, the bank’s Deputy Governor Ms.Yvette Fernando said yesterday.

“I appeal to the borrowers who can pay, to pay their loans for their own best interests. And those whose income generation has been truly affected due to the ongoing pandemic would hear an announcement from the Central Bank in the coming weeks for a different arrangement, Fernando told the media at an online forum subsequent to the CBSL Monetary Board’s monthly monetary policy review meet.

The Deputy Governor added: “I think we have been in moratoriums for about one year. We need to always remember that moratoriums have also the other side of it. When it comes to financial institutions, they have a continuous obligation to make payments to their depositors. So even as the Monetary Board and the Central Bank, we are not in a position to tell the banks continuously to continue these moratoriums. However, considering the situation, Tourism and Passenger Transport sectors are still in moratoriums with some adjustments until September. But based on the more recent situation we are going through – we have already started discussions with the banks and the Finance House Association to see how best or what kind of facilitation we can give these borrowers because we understand that there can be payment delays because of the culture of certain businesses and as a result their income generating avenues have been disturbed.

“And by all means, any bank will definitely be in a favourable way because banks also want their investments or the loans to be paid on time or avoid complete defaults. The discussions we have had with the banks in this regard have been favorable, but we are not at this point looking at a complete moratorium because I think we cannot do this when we carefully consider the point of view of the banks and finance companies also. We have to understand the fact that these banking and non-banking sector companies are operating at different levels and so they don’t have the same capacity to go through these kinds of moratoriums continuously. So we have to address that.

‘These discussions are ongoing and most probably very soon we will be able to announce something that will help the really affected borrowers also. I kindly would like to say that anybody who can pay or in a position to pay their loans should continue to do so because it is in their best interests to do so. Your delaying the payment of a loan means; there’s going to be some additions to it, so it’s in your best interests to pay while you can. But for those who are really affected, we are in the process of looking at it and we will make some announcement.

‘But broadly speaking, we are taking the position that it is the bank and the borrower who could practically agree on a suitable arrangement. One year into moratoriums, the financial institutions also know about the nature of their customers and what kind of disturbance they encountered on the ground. With that knowledge, we are looking to issue instructions to the banks in this regard.’