Central Bank to set up credit guarantee scheme for banks

The Central Bank (CB) will setup a credit guarantee scheme to protect the banking sector when granting working capital loans to small and medium-sized enterprises (SMEs) in non-performing loan (NPL) category under the forthcoming SME relief package.

Under the announced SME relief package, the SMEs in NPL category would get access to working capital loans, with a six-month repayment period including three-month grace period at a maximum interest rate of 10 percent. “We are introducing this scheme on a voluntary basis for banks. 75 percent of the loans will be guaranteed by the scheme and we have earmarked Rs.5 billion for this. 

“The CB will be responsible for this scheme and the banks will contribute 1% of the loans disbursed to SMEs and the rest will be financed with CB funds. Hence, there will be no immediate pressure on the State budget,” Treasury Secretary S.R. Attygalle said.

Sri Lanka’s banking sector NPL ratio stood at 4.9 percent at the end of last year’s third quarter.

Attygalle estimated that 30-40 percent of loans in NPL category to be of SMEs. Therefore, he noted that the working capital loans for a three-month period might go up to Rs. 5-6 billion and a maximum of Rs.10 billion.

The Monetary Board of the CB last Wednesday approved the relief package for SMEs. The Cabinet of Ministers is expected to be briefed on the relief package next week by Prime Minister and Minister of Finance, Mahinda Rajapaksa. Subsequently, the CB is expected to issue necessary directions to banks to implement the package. (NF)