23 December 2024 01:45 am Views - 70
The Central Bank in a circular issued last week, announced a string of relief measures on the credit facilities of the Small and Medium size Enterprises (SMEs) who were affected from the repeated crises from the Easter Sunday attacks to the pandemic to the economic crisis which sent their costs, interest rates and taxes to sky high levels, pushing many out of business and others to the brink.
The Central Bank, in agreement with the banks’ collective represented by the Sri Lanka Banks’ Association (Guarantee) Limited announced the relief measures which included waivers on unpaid interest and not to reject any new loan application by an SME under this scheme only based on the borrower’s adverse CRIB score.
Further, the scheme also asked the banks to consider providing any additional relief including working capital facilities subject to the borrowers’ repayment capacity and the submission of credible business revival plans, assessed on a case-by-case basis.
Besides, the Banks’ Association was of the view that any extension of the Parate execution cannot go beyond March 31, 2025. The earlier suspension of the law which makes it possible for a bank to acquire the asset under security due to continuous non-repayment of the loan by an SME lapsed on December 15, 2024 prompting fresh talks under the new government over whether the relief should be extended and if so for how long.
The suspension of the protection available for banks over bad borrowers, specially the willful defaulters became controversial at the time it was implemented in March this year as banks vehemently objected to the move while the Central Bank too showed less inclination to support it due to it providing protection to the banks and thereby the depositors.
Under this most recent relief scheme, the eligible borrowers would only be the SMEs whose facilities fell into Stage 3 or non-performing status on or after April 01, 2019, “provided that SMEs initiate discussions with the bank’s Business Revival Units by March 31, 2024, subject to submission of all required documents”, a statement released by the Bank Supervision Department of the Central Bank said.
Under the scheme, rescheduling of impaired loans for eligible borrowers will be based on their repayment capacity and subject to presenting an acceptable business revival plan.
And all such rescheduling agreements must also be finalised by June 15, 2025.
Further, the scheme also categorised the SMEs based on the size of their facility identified each at Rs.25.0 million level with the smallest of the categories with facility value less than Rs.25.0 million getting the farthest time to commence their repayment of the rescheduled facility.
For instance, an SME with a credit facility of Rs.25.0 million or below can start repayment of their rescheduled loans no later than December 31, 2025 while those with facilities between Rs.25.0 million and Rs.50.0 million to commence by September 30, 2025 and the larger category with facilities over Rs.75.0 million to start repayment the earliest by June 30, 2025.
Further, the eligible SMEs can also avail themselves to receive interest waivers on unpaid interest, barring capitalised interest for the period from April 01, 2019 through December 15, 2024.
However, the share of the unpaid interest waiver will vary based on the capital outstanding as of December 15, 2024 and also the time that the SME takes to settle the unpaid portion of the interest.
For instance, if an SME with a capital outstanding of between Rs.5.0 million to Rs.10.0 million decides to settle his unpaid interest within the next 6 months, he is eligible for a 65 percent waiver while the percentage of the waiver becomes less with more time the borrower takes to settle the facility with a floor of 40 percent. The floor waiver further goes down to 20 percent for borrowers’ whose outstanding capital is between Rs.10.0 and Rs.25.0 million.
This makes the size of the relief more for small SMEs and less for larger SMEs.
In the case of a rejection of a request for relief under this scheme, the banks are required to provide reasons for such a rejection and also advise the client that he can make an appeal to the Director of the Financial Consumer Relations Department at the Central Bank.
Further the banks are also required to provide the eligible borrowers with a breakdown of the capital, interest, and other charges of their credit facilities upon request.