Sri Lanka: CBSL to Absorb Credit Risk on Business Loans

Source: Regulation Asia Editors, Regulation Asia 2020-07-02

The CBSL will provide credit guarantees ranging from 80% for smaller loans to 50% for larger loans issued to businesses affected by Covid-19.

The CBSL (Central Bank of Sri Lanka) on Wednesday (1 July) launched a new programme under it will provide credit guarantees to banks on loans granted to businesses affected by Covid-19.

“Under this Scheme, the Central Bank will provide a credit guarantee to banks, ranging from 80 percent for smaller loans to 50 percent for relatively large loans, enabling banks to grant loans to address working capital requirements of the affected businesses,” the CBSL said.

“With the Central Bank absorbing a significantly higher percentage of the credit risk, banks can extend their lending to vulnerable businesses focusing on the viability and cashflows of such businesses rather than collateral.”

Banks are expected to use their own funds to grant loans at 4 percent to businesses, accounting for LKR 180 billion in additional liquidity provided by the CBSL through 300 basis points in SRR (Statutory Reserve Ratio) reductions during the pandemic period.

The CBSL will provide an interest subsidy of 5 percent to cover banks’ cost of funds.

The new scheme will operate alongside the LKR 150 billion refinance facility for banks.

CBSL

Sri Lanka: CBSL to Absorb Credit Risk on Business Loans

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