Moratorium on loans

It was a call from far-away Moneragala that woke me up this morning. On the line was ‘ Nana’ Mohideen, the jolly-mood trader and friend from Kussi Amma Sera’s extended network. “I say Sireee … no business no,” he said, in halting English. “What do you mean?” I asked. “Well after Easter Sunday incidents, few people coming to my shop. My debt rising, several bills to pay….…,” he said, inquiring whether there was a possibility of getting some relief from the government to delay the payment of loans he has taken.

“There are a few more sectors other than tourism that are asking government support to delay paying their loans as business is down,” I said, urging him to speak to his bank. Muslimowned shops were indeed having a drop in customers and I remembered a Facebook post where a customer said she was the only one at a well-known clothing chain store.

As we discussed other matters, Kussi Amma Sera and her buddies had gathered under the Margosa tree, sipping the morning tea and conversing about a news report that an 11-year-old child from Hambantota had died from malnutrition, essentially without proper food to eat.

“Meka harima dukai (This is very sad),” said Serapina, shrugging her shoulders in despair. “Mevage deyak meeta issela kavadavat wela ne. Badaginnata Sri Lankave kavuruth merila ne (This has never happened before. No one has died of starvation in Sri Lanka),” said Mabel Rasthiyadu.

“Monataram kanagatu tatvayakda (What a sad state of affairs),” said Kussi Amma Sera.

I had completed my conversation with Nana Mohideen and was reading the daily newspaper on the subject of moratoriums when the phone rang again. It was Arthika, my nonsensical economist friend on the line.

“The economy is in a bit of a spin … consumer sentiment is down,” he said, adding that while economic growth for the first quarter had shown progress from the same quarter in 2018, growth would be affected in the second half of the year, particularly due to the drop in tourism and other sectors – largely owing to the Easter bombings.

We then got talking on many issues affecting the economy particularly how Sri Lanka will be able to service all its loans.

When it rains it pours, they say. Following the request by the

tourism industry for a moratorium on their loan repayments, which has been granted, tea factory owners and producers are asking for similar concessions.

Next the garment sector industrialists are likely to join in followed by SMEs who suffered from loss of business due to lack of confidence. Garment industrialists are bracing for markets in Europe via GSP+ concessions getting affected, if President Maithripala Sirisena goes ahead with executions initially of convicted drug dealers.

He has signed the death warrant for four convicted drug dealers and seems determined to go ahead with the death penalty. If it happens, it would be the first time a person would be hanged since 1976, when implementation of the death penalty was suspended.

The move has been condemned by Amnesty International, the United States and on Thursday by the European Union (EU). In the case of the EU condemnation, the EU might link this to GSP+ concessions in which human rights are a key factor and may leverage on GSP+ concessions to urge Sri Lanka to abandon death by hanging or lose the concessions.

If Sri Lanka loses these concessions, aggrieved garment industrialists will be knocking on the doors seeking state concessions in the form of moratoriums on loans and other needs.

Following the successful request from the tourism sector for delayed payment on capital and interest of their loans, tea factory owners are also seeking similar concessions on loans totalling a massive Rs. 5 billion.

Some 105 factories out of 500 privately-owned ones are seeking these concessions as they battle financial problems precipitated by low crops and mismanagement.

While 15 factories have closed down, several others are on the verge of collapse essentially due to lack of crops mainly from areas like Galle, Matara and Ratnapura where most of these factories were running at about 60-70 per cent capacity. Ironically, this is at a time when Sri Lanka recorded its highest crop production in five years of 34.1 million kg in May, second only to the highest ever crop production of 39.2 million kg in May 2014.

During a meeting between factory owners and Prime Minister Ranil Wickremesinghe last week, the PM had said that they need to look at the problems faced by other stakeholders in this sector too.

Regional Plantation Companies (RPCs) are also likely to take up the PM’s call and list out their woes vis-à-vis loan servicing.

While more calls emerge for a moratorium on capital and interest payments on loans, the number of non-performing loans (NPLs) or loans that have delayed payment or are not being serviced at all is rising, a reflection of a slowdown in the economy.

According to ratings agency Fitch Ratings, NPLs are becoming a serious problem for commercial banks.

NPLs grew sharply by 64 per cent in 2018 – the sharpest increase since the pawning debacle in 2013 – driving the sector NPL ratio to 3.4 per cent (2017: 2.5 per cent), it said.

This trend continued in 1Q19, with the sector NPL ratio rising further to 4.2 per cent broadly in line with Fitch’s expectations for 2019.

Fitch Ratings said its expectation of continued pressure on banks’ financial profiles due to the challenging operating environment – as reflected in its negative outlook on the sector – is being borne out in their results.

Fitch also said that fund-raising plans by banks – to meet capital requirements – hit a snag when recent rights issues by some banks were significantly undersubscribed.

Given these issues, the economy is on a roller-coaster ride but could recover next year if all elections are out of the way. Elections cause pessimism and negativity in business activity.

Under the Margosa tree, the conversation drifted to Airtel’s latest offer of a very generous talk-all-you-like package with Mabel Rasthiyadu however saying that she believed this applied only to Airtel-to-Airtel calls. So……bye for now till we meet again next week with another concoction of Kussi Amma Sera’s kitchen eco-noo-mics.