COVID-19 relief measures; Banks block Government decisions

Difficulties in providing collateral and extensive paperwork, and delays in providing the money at the required time have made some of the Government’s main COVID- 19 relief measures less effective than they could have been, business leaders said.

Applications had been lodged with banks for debt moratoriums and the two-month working capital loan at four percent a year interest mandated by the Government.

“Initially, we were told two months of the required working capital would be provided,” said the CEO of a local company that provides financial advice.

“Later, that was narrowed down to just salaries and utilities," he said.

The Central Bank of Sri Lanka ( CBSL) issued circulars instructing banks to finish processing the working capital loan within 45 days of a written request being received. But this was observed in the breach.

“Even people who received approval will now not be getting the money in time because the processes are taking so long and businesses don't have liquid cash or revenues to run on,” the CEO said, requesting anonymity.

Some banks reportedly blamed the delay on the CBSL, whose involvement is required at a certain stage.

“We are a company that deals with a lot of start- ups. What we have noticed is that providing all the documentation and collateral required by banks is not an option for entrepreneurs who cannot afford the accounting expertise required to compile them. The benefit is not going to the people that need it,” he added.

Time lags, extensive vetting and a general lack of awareness have put a dent in the programme. The CEO said, based on their experiences with clients something like an overdraft with an added interest percentage would have been more practical and timely under prevailing circumstances.

“The delays are the result of prior loan moratoriums which have to be facilitated first and because of practical issues arising from the curfew and the country situation,” said Ceylon Bank Employee’s Union General Secretary Ranjan Senanayake.

“Three continuous loan moratorium schemes since the Easter Attack, the cancellation of late fees and the postponement of interest payments significantly affect a bank’s ability to run,” Mr Senanayake said, commenting on the reserve situation.

One of the most significant flaws of the Sri Lankan banking system is that it lacks facilities to help people who have no collateral--those who typically need most assistance from financial institutions.

“It doesn't assist the poor man. So, there is a high chance that this policy might not reach the people that need the help,” Mr Senanayake said.

The union has recommended the setting up of a task force to mediate issues between banks and clients. For now, one solution which could be viable is for the Government to step in as a guarantor, thereby mitigating the risk to the banks.

There was a credit risk to the Government’s relief scheme, said Bank of Ceylon ( BoC) Acting General Manager Sudath Gunasekara.

The CBSL mandated that a single customer can receive no more than Rs 25 mn. But some clients, who satisfied the guidelines, needed more. This resulted in the bank having to make up the rest in bank funds.

“That means the four percent interest is simply not an option because the Central Bank covers four percent up to Rs 25mn a client,” Mr Gunasekara said.

This is because the main purpose of the scheme was to support Small and Medium Enterprises.

“But we have to provide for bigger corporate clients, too,” he said. So the BOC then follows the Average Weighted Prime Lending Rate (AWPLR) which the CBSL updates every week. It was 9.41 percent last week.

“This is one reason behind the time lag and the stringent evaluation process. Nevertheless, where collateral hasn’t been available, banks have taken into consideration past records and relationship with the institution," Mr Gunasekara said.

Banks are functioning under the one-third staff rule the Government imposed. The BoC has begun calling employees in on weekends to expedite matters. It has also appointed regional committees. The information they collect is updated to a central database.

There had also been a lack of awareness among businesses about the relief measures on offer, causing the Government to extend the due date for applications from April 30 to May 15, said Ceylon Chamber of Commerce Chief Economist Shiran Fernando. In addition, banks are not working at full strength.

The Chamber brought bank CEOs and CBSL Deputy Governors together for webinars to spread awareness through Facebook. The regulator also now has an FAQ section.

The processes have, however, become smoother since the relaxation of restrictions. Meanwhile, the effectiveness of the relief measures will be clear when disbursement figures are released.

“People who need money should be able to show they can repay it,” said CBSL Deputy Governor Nandalal Weerasinghe.

“It’s all public money, not the bank’s money or CBSL money. It’s not a subsidy or a handout. It is a loan on subsidised interest," he added. Dr Weerasinghe said there had been a huge demand for the Rs 50bn allocated. “Banks will have to find a way to give it to the most deserving,” he said.

He also insisted there was no delay from the CBSL, saying it sends its approval within two days. He refused to disclose disbursement figures saying they would be released in future.