Mon. Nov 29th, 2021

Regulation HK

Financial Regulator

Sri Lanka Offers Credit Support for Banks to Boost SME Lending

2 min read

The new scheme provides risk mitigation support to banks that defer principal repayment and extend new loans for SME borrowers, including those that have defaulted. 

CBSL (Central Bank of Sri Lanka) has announced the introduction of a credit support scheme to facilitate continued lending to SMEs by the banking sector.

To aid lenders, the government and CBSL will provide risk mitigation for loans and advances provided under the new scheme up to 75 percent of the capital sum granted to borrowers.

Banks that have been granted refinance loans that fall due this year can also defer their principal repayments by 12 months.

Under the scheme, participating banks shall offer eligible SME borrowers a moratorium on principal repayment until end-2020, upon request from the borrower, with no change to the instalment amounts when payments resume and with no penalty component.

SME borrowers that have LKR 300 million (USD 1.66 million) or more in credit facilities at a bank are eligible to participate, provided that they continue to service interest payments during the moratorium period.

Additionally, permanent credit facilities that fall due or are reviewed before end-March shall be extended until end-June, CBSL says. Similarly, trade finance facilities shall be extended by 30 days.

Banks may also grant additional loans up to LKR 300 million for SME borrowers that are able to demonstrate a credible business plan, provided the loans are repaid within five years, including a one year grace period.

In the NPL (non-performing loan) category, banks shall waive the total penal component of interest accrued and unpaid on NPL loans and advances at the banks’ own cost.

In addition, banks shall reschedule defaulted loans, allowing them to be repaid over a period up to twice the remaining instalments of the original loan. A one-year grace period on principal repayment shall also be allowed provided that interest payments are serviced.

SME borrowers in default shall also be granted new working capital loans with a maximum tenure of six months, with a three-month moratorium on principal repayment.

Legal action and loan recovery action against non-performing SME borrowers shall be suspended for those that have been accepted under the new scheme.

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