Most NPLs from those who didn’t apply for moratorium: Survey

Most of the non-performing loans (NPLs) in the banking sector have come from those who hadn’t applied for any type of relief such as the payment holidays afforded by way of moratoria, a survey has found. 

Sri Lankan banks emerged largely unscathed from the pandemic-induced troubles, particularly preserving its asset quality, as the regulator-initiated moratoria and other relief afforded by the banks on their own accord mitigated the pandemic’s full-blown impact on the sector. “The increase in NPLs in the SME category was due to the defaults of clients who had not applied for moratorium facilities,” the Central Bank said.  Sri Lanka’s banking sector, consisting of both licensed commercial and specialised banks, together reported a gross NPL ratio of 4.9 percent in 2020, tad weaker from 4.7 percent in 2019.  NPLs categorised based on the type of customer showed that the retail and corporate types decreasing their NPLs substantially during the fourth quarter in 2020, while the small and medium-sized enterprise NPLs rising. 

The Central Bank said the decrease in NPLs in the retail and corporate clientele was a result of rescheduling of loans and the extension of moratoria since October, when the fresh set of restrictions on the economy had to be imposed. 

While some uptick in NPLs is expected in all three client categories in the more recent fiscal first quarter ended in March 2021, the resurgent economy and acceleration in credit growth were expected to have kept the ratio in check. 

The bankers have indicated that only between 10 to 20 percent of loans coming out of moratoria could spell trouble. But that section was far from damaging to the overall sector asset quality and even that could be taken care of, if the banks provide extended relief on such customers by way rescheduling until this borrowers restore their cash flows hampered by the pandemic. 

Sri Lankan banks are expected to come out with their best quarterly earnings for the March quarter in the next couple of weeks, as they are disbursing loans at record pace, responding to the recovery in economic activity and consumer demand.