Moratorium challenges for SL banks ahead
Sri Lankan banks will struggle with moratorium repayments towards the year end, but the real nightmares will be recovering other term loans, say worried bankers.
Top bankers say that they’re still riding the honeymoon period on the moratorium and working capital loans which the government declared in March. They fear the reserves will dry up because of the moratorium as the banks are denied monthly recovery of cash.
The bigger banks will get the bigger challenges and they will be stressed with recovering the existing loans and the working capital loans more than their smaller counterparts.
The quantum of the moratorium will be revealed next week, bankers said, after which they can estimate how big a hit it’ll be.
The 2-month, 4 per cent interest rate loan is only for working capital but bankers noted that for businesses such as tourism to come right it will take at least six more months than the anticipated two months. Thus they will need more time. “The challenges are far more than two months for the working capital loan at 4 per cent. At the end of the say, six months, no one will settle their loans on day one and that is to be expected. So this may drag on for a few more months. With all this the recovery of cash for banks will be denied and that is a huge challenge we will be facing,” a top banker told the Business Times.
Expressing similar sentiments, the CEO of a bank noted that during six months of the 12 months, repayments won’t come which will dry up the banks.
Sri Lankan banks have Rs.10 trillion in total value of loans. Out of this some 50 per cent are term loans such as project loans, housing loans, personal loans and loans for capital expenditure. This adds up to roughly Rs.5 trillion. These will be hard to recover and these figures make the working capital loan a drop in the ocean.
Another banker said that a lot of the loans that a bank gives out will depend on the loans that they recover. In this case recovery is far away.
Added to the woes, the Central Bank last week stopped banks from declaring dividends for FY20 and foreign banks from repatriating profits until year end in a bid to see that banks maintain correct levels of liquidity and run cash flows prudently amid the COVID-19 pandemic.
Foreign banks are directed to refrain from repatriation of profits not already declared for the 2019 and 2020 financial years.
More bad news came with foreign institutions and funds selling banking stocks last week after the share market which was closed during the 51-day lockdown started in line with the decision made by the government to relax curfew regulations in the Western Province.