Central Bank issues guidelines to establish Business Revival Units

• Urges licensed banks and concerning borrowers to effectively collaborate to ensure viable businesses are revived in a sustainable manner
• Says decision was taken after consulting relevant stakeholders
• Asserts setting up of BRUs is considered imperative to assist both performing and non-performing borrowers

Sri Lanka will likely see fewer businesses collapse from the challenging macroeconomic circumstances, as the financial sector regulator, the Central Bank, instructed the licensed banks to further strengthen the already established revival units.

The Central Bank directed the licensed banks to establish the Business Revival Units (BRUs) by mid-May 2024 and be fully compliant with the requirements of the circular by July 01, 2024.

On March 28, the Central Bank issued broad guidelines to the banks to firm up the functions of already established post-COVID-19 revival units and reformulate such units as BRUs. 

Accordingly, the Central Bank of Sri Lanka requests both the licensed banks and concerning borrowers to effectively collaborate to ensure viable businesses are revived in a sustainable manner, to benefit the borrowers, resulting in enhanced economic activities and contribute to the development of the national economy. 

“The enhanced scope of the proposed BRUs will facilitate sustainable revival of viable businesses affected by the extraordinary macroeconomic conditions and ensure the proper handling of the increased impaired assets of the licensed banks,” the Central Bank said. 

The Central Bank said this decision was taken after consulting the relevant stakeholders, including the banking industry and Chamber of Commerce, when formulating these guidelines. 

The financial sector regulator acknowledged that the challenging macroeconomic conditions prevailed during the recent years have led to disrupting the income-generating activities of businesses, adversely impacting the ability of the borrowers to duly repay their loans and thereby impairing the recovery process of the licensed banks. 

The setting up of the BRUs is considered imperative to assist both performing and non-performing borrowers of the licensed banks, whose businesses are fundamentally viable to revive.  

Salient features of BRU 

According to the circular issued by the Central Bank, the features of the BRU are as follows:

a. The licensed banks are required to have robust business revival and rehabilitation policies and procedures to support revival of businesses. 

b. The large banks, with more than 50 branches, may consider establishing BRUs at large branches/regional offices of banks, in order to support revival of businesses of affected borrowers more effectively and efficiently.

c. Fundamental viability of a business is a key factor for the consideration of business revival by a licensed bank. In the viability assessment, both financial and non-financial indicators are taken into consideration. 

d. Borrower’s continuous cooperation will be critical for the process of reviving a stressed business. 

e. The business can be revived through both financial and operational restructuring tools and processes. The selection of appropriate set of revival tools is subject to a mutual agreement of parties involving in the 
revival process. 

f. Corporate borrowers, who have outstanding credit facilities at multiple banks, may agree on a ‘Corporate Workout Framework’ on a voluntary and mutually agreeable basis, without the court intervention, to address financial and/or business distress faced by them.

For this purpose, a ‘corporate’ is defined as a business with an annual turnover above Rs.1 billion, as per the audited financial statements or cumulative outstanding credit facilities granted by the licensed banks, equal to or more than Rs.250 million.