Non-performing loans reach Rs.1.6 trillion as at March 31, 2023
Sri Lanka’s banking sector is now saddled with additional pressure from the ever increasing non-performing loans (NPLs) given to COVID-19 hit businesses and individuals under government’s relief scheme, Finance Ministry data showed.
According to the data, a massive sum of Rs. 1.6 trillion with accumulated interest as at March 31 2023 has to be repaid to the local banking sector by business enterprises, SMEs and individuals, hit by COVID-19 and subsequent economic crisis.
It has been indicated that non-settled loans obtained by affected business owners and persons under concessionary terms in five stages now amounts to 15.65 per cent from the total debt stock.
The coronavirus outbreak coupled with economic crisis and the resultant prolonged business disruptions have made it impossible for borrowers to repay their loans given under the scheme resulting in the banks’ credit profiles on the down side, several general managers of leading banks told the Business Times.
Some of these banks are facing multiple challenges at present, including muted loan growth, margin declines amid lower interest rates, and rising loan-impairment charges due to asset-quality pressures, they said.
Asset quality in banks has deteriorated over the last three years. The construction sector, which the banks had the highest credit exposure to, often suffered liquidity shortages as a result of the delays in receivables from the state sector.
The banks experienced the construction-related NPLs rising. In addition, the tourism sector was impacted due to the economic crisis.
There was a sharp increase in NPLs of banks with the expiration of the moratorium period, the general manager of a leading bank said.
In response to the COVID-19 crisis the Central Bank (CB) implemented several initiatives; policy rate cuts, releasing capital and liquidity buffers, relaxing administrative and supervisory compliance requirements, and implementing debt moratorium and credit scheme.
Sri Lanka’s small and medium businesses are forced to default loans taken at a low interest of 7 per cent at that time as the interest rates have been increased to 13 per cent pushing them into in more trouble.
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