Banks get Rs.62bn worth of tourism sector loan relief requests

From left : SLTDA Consultant K Makalanda , SLTDA DG Upali Ratnayake, Non Cabinet Minister of Economic Reforms and Public Distribution Dr. Harsha De Silva, Minister of Tourism Development, Wildlife and Christian Religious Affairs John Amaratunga, Central Bank, Banking Supervision Department  Additional Director Jagath Gamlath and member of the Tourism Advisory Committee Dinesh Weerakkody
Pic by Waruna Wanniarachchi

By Nishel Fernando 
Sri Lanka’s banking sector has received a record 1055 applications requesting for moratoriums on outstanding loans worth Rs.62 billion by the struggling tourism industry at the end of May, According to the Central Bank.

The Central Bank’s Bank Supervision Department, Additional Director, Jagath Gamlath revealed that out of the Rs.62 billion, Rs.26 billion worth loans were being evaluated by the banks by end of May.

The Central Bank on May 8 directed the banks to grant one-year moratorium on tourism sector loans in the aftermath of Easter Sunday attacks.

Gamlath made these revelations yesterday during a press conference in Colombo, organised by the Tourism Ministry.  However, it was later informed by the representatives of State-run Bank of Ceylon (BOC) and People’s Bank that the two banks alone had received 2, 200 applications requesting for moratoriums as of 
this week. 

Economic Reforms and Public Distribution Non Cabinet Minister and member of the special Cabinet Sub-Committee on Tourism, Dr. Harsha de Silva estimated that the applications for moratoriums have at least doubled since end of May, while applications under consideration might have increased at a similar rate.

“Rs.62 billion is 50 percent of the actual number as of now or it could be even more than that. As per the Central Bank data, private banks seem to be performing better than State banks in processing moratoriums,” he said.

Dr. de Silva urged the Central Bank to provide data on moratoriums on a weekly basis in order monitor the effectiveness of banks granting moratoriums. 

“The Central Bank planned to provide us monthly reports, which we mentioned to be inadequate. We are interested to find out whose applications are being rejected and the reason for rejection. Then, the bank CEOs will have to explain to the Central Bank why there are gaps. These matters cannot take months to be resolved,” he said.

A representative of a State bank present at the press conference noted that many of their staff members at branch level were not aware of what moratoriums were and therefore the banks had to educate them on moratoriums initially, which caused a delay in submitting the necessary data to the Central Bank.

As the Central Bank is expected to hold the monthly meeting with CEOs of banks on June 20th, Dr. de Silva said the banking regulator would press the banks, which are lagging behind in processing applications for moratoriums submitted by the tourism sector. 

“It is good for banks to do it. If the banks don’t grant moratoriums, the borrowers will go into NPL category, which is bad for the bank. Therefore, it’s in the interest of the bank itself to provide the moratorium,” he stressed. 

Gamlath noted that tourism sector already had a high NPL ratio of 5.2 percent compared to the overall NPL ratio of 4.2 percent even prior to Easter Sunday attacks.
“As per our data, the tourism was not doing well,” he said. 

According to the Central Bank, the banking sector’s exposure to the tourism sector stood at Rs.280 billion by end of last year.

In addition, the non-banking financial sector at least has received several hundreds of applications requesting for moratoriums. 

However, the tourism industry stakeholders complained that many of these firms are not processing their applications while charging a compound interest on a weekly basis. 

Meanwhile, Dr.de Silva said the Cabinet Sub-Committee requested the Department of Census and Statistics to do a comprehensive study on the tourism sector in order to identify the affected segments of the industry. 

“We are also studying the impact at small and micro level and we have asked the Department of Census and Statistics to undertake a comprehensive study, so that we will know to what extent the industry felt the impact.

“We hope to have sample of various tourism related entities and we will track them to know how fast their recovery is happening. That way we can estimate any delays and make some policy changes rather than waiting until the end of the year or quarter,” he elaborated. 

Tour guides request further relief

Tour guides yesterday urged the government to exempt them from the compound interest, which will be calculated during the one-year moratorium relief provided to the tourism sector. 
As per Central Bank guidelines, the banks are advised to convert the capital and interest due during the moratorium period into term loans from July 2020 onwards. 

However, the tour guides stressed that moratoriums alone is not sufficient, as they have been severely impacted by the Easter bombings.

Tourism Development Minister John Amaratunga agreed to discuss their request with the Central Bank. 

However, Central Bank’s Banking Supervision Department, Additional Director, Jagath Gamlath cautioned against adding further burden to the banking sector, noting that banks heavily depend on depositor funds to carry out their operations. 

Only 4 banks on board to provide working capital loans

So far only four banks have signed Memorandums of Understanding (MOUs) with the Treasury to grant working capital loans under Enterprise Sri Lanka (ESL) to the tourism industry, a Treasury official said. 

The working capital loan scheme was announced on May 8th along with the tourism relief package. 

The official revealed that Bank of Ceylon, People’s Bank, Hatton National Bank (HNB) and Union Bank have already signed MOUs with the Treasury. 

She noted that procedural delays might be getting in the way of banks signing the MOUs with the Treasury. 

The government also recently announced ‘Sancharaka Podda’ interest-free loan scheme under ESL for informal tourism sector.

The loan facility was to be granted via the State-owned Regional Development Bank (RDB).