Sri Lanka Banks No Longer ‘Scared’ to grant Covid-19 Loans

Source: Regulation Asia Duruthu E Chandrasekera, Regulation Asia 2020-07-24

Banks no longer need to risk weight the loans against capital due to a guarantee scheme announced by CBSL earlier this month.

Over 40 percent of Saubagya Covid-19 Renaissance Facility loan disbursements have been approved by the CBSL (Central Bank of Sri Lanka) as at Thursday spurred by central bank guarantees on loans to businesses affected by the coronavirus.

The Facility was initially set up in March to channel additional working capital loans to businesses. Out of the LKR 150 billion cap on the scheme, LKR 62 billion in loans has so far been granted, CBSL officials said.

Under Phase III of the scheme, the CBSL pledged to underwrite up to 80 percent of the credit risk of the loans (up to 50 percent for relatively large loans). As such, banks no longer need to risk weight the loans against capital, providing much needed room to expand their loan books. According to officials, banks aren’t ‘scared anymore’ to disburse loans as the guarantee relieves the pressure on their capital.

Loan recipients have been able to see more speedy relief, as banks are now able to inspect credit applications themselves, before sending them to CBSL for final approval. Earlier, the process involved heavy inspections by both banks and CBSL, which caused delays. CBSL officials said their Public Debt Department can now approve the loans within 24-hours.

CBSL has meanwhile also extended the debt moratorium for the tourism sector by a further six months.

CBSL

Sri Lanka Banks No Longer ‘Scared’ to grant Covid-19 Loans

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