COVID relief on tourism sector loans extended to June 2022

The Central Bank last week extended the loan payment holidays on the tourism sector reeling from the lingering effects of the pandemic-induced restrictions by a further nine months to June 2022, as the most recent round of relief is coming to an end by the end of this month.

In a circular issued, the Central Bank asked the licensed banks to extend the current moratorium on capital and interest on loans of the pandemic-affected eligible employees and members in the industry from October 01, 2021 to June 30, 2022, making it the longest such relief afforded to a single industry dating back to April 2019, when the country was hit by multiple terror attacks on Easter Sunday. 

The Central Bank on September 01 extended similar relief to other sectors through December 2021, from August 31, as the lockdowns prolonged, dampening the business and personal incomes of a large portion of the population, 

whose living conditions are fast deteriorating amid the soaring prices. Tourism and related industries became the direct casualty of the pandemic around the world since its onset last year, decimating nearly US $ 9 billion worth of foreign earnings to Sri Lanka alone during the last two years, losing incomes to nearly three million direct and indirect dependents on the sector and plunging the country’s fragile economy to its worst foreign exchange liquidity crisis in recent times. “Eligible borrowers who wish to avail the moratorium shall make request seeking such moratorium to the relevant licensed bank on or before October 15, 2021,” the circular read, while asking banks to practice leniency on delays on receiving such requests, provided reasons for such delays are justifiable. 

Providing instructions as to how the loans coming under the moratorium period should be structured, the Central Bank said capital and interests falling during the relief period from October 01, 2021 to June 30, 2022, would be converted into a term loan and amalgamate it with “the capital and interest falling due during the previous moratoriums granted”, before the recovery of that converted loan begins, “once the extended moratorium period is over”. 

In what appears to be an act of insulating the borrowers from the upward trajectory in market interest rates, the Central Bank left the interest rates chargeable on the converted term loan at the level stipulated in their original circular dated August 26, 2020 unchanged, which set the rate at the latest primary auction for one-year treasury bill available by April 01, 2021, plus one percentage point per annum.  And the repayment period of such a loan will also remain unchanged at a minimum of two years while a longer repayment period could be negotiated with the bank at an interest rate agreeable to both parties. 

Further, banks were also asked to waive off accrued and unpaid penal interest as at October 01, 2021,  if any and penal interest will also not be accrued or charged during the moratorium period.  Alternatively, the new circular also has provisions for banks to restructure the existing credit facility for a longer period, considering the repayment capacity of the borrower and on an acceptable revival plan. “In this case, the licensed bank and the borrower shall agree on terms and conditions including a concessionary interest rate, considering the prevailing low interest rates,” the circular added.  However, if any borrower is willing to settle his existing credit facilities instead of opting for moratorium under this circular, the Central Bank said banks are encouraged to provide them with interest rebates. Banks are also asked to waive-off early settlement fees and other fees and charges, including recovery of future interest of lease facilities, if any. 

On non-performing loans, the Central Bank asked banks to suspend all types of recovery actions against them till June 30, 2022, provided such facilities have been classified as non-performing on or after April 01, 2020. “Instances where there are on-going litigations in courts relating to recovery, borrowers shall enter into an agreement in the courts to obtain this concession,” the circular read.