ECONOMYNEXT – Sri Lanka’s banks would be required to set up business revival units as part of efforts to help firms that have bad loans, Central Bank Governor Nandalal Weerasinghe said, while a national credit guarantee institution would also help small businesses access credit.
“To facilitate the sustainable revival of businesses affected by the recent challenging macroeconomic circumstances, and to ensure the proper handling of the increased levels of impaired assets of licensed banks,” Weerasinghe said Wednesday (10) delivering the annual policy statement.
“…[T]he Central Bank is to issue broad guidelines to give effect to the establishment of Business Revival Units in licensed banks to further strengthen their role in the recovery of businesses, especially Small and Medium Enterprises (SMEs) and corporates.”
“A National Credit Guarantee Institution (NCGI) is also being set up by the Government, which would offer credit guarantees to support the SME sector while mitigating potential credit risk in lending to SMEs.
“These efforts would further encourage financial institutions to facilitate SMEs.”
There have been calls to stop parate execution, where banks decide to action collateral by board decision.
However, stopping loan recovery will make banks reluctant to lend, particularly to small and medium enterprises, Governor Weerasinghe said.
Sri Lanka’s bank bad loans spiked to 13 percent last year in the wake of a Coronavirus crisis and money printed for aggressive macro-economic policy (targeting potential output) that triggered a currency crisis and sovereign default.
In Sri Lanka, and elsewhere, bad loans generally rise when stabilization policies are applied to stop currency crises triggered by inflationary rate cuts. (Colombo/Jan11/2024)