ECONOMYNEXT – Sri Lanka’s banks have been asked by the central bank to set up business revival units to help restructure debt of troubled borrowers who have a chance of recovery, starting from May 2024.
“The challenging macroeconomic conditions prevailed during the recent years have led to disrupting the income generating activities of businesses, adversely impacting the ability of borrowers to duly repay their loans and thereby impairing the recovery process of licensed banks,” the central bank said.
“Thus, the setting up of business recovery units is considered imperative to assist both performing and non-performing borrowers of licensed banks whose businesses are fundamentally viable to revive.”
Licensed banks have to set up BRUs by mid-May 2024 and fully comply with the guidelines by July 01.
“The enhanced scope of proposed business recovery units will facilitate sustainable revival of viable businesses affected by the extraordinary macroeconomic conditions and ensure the proper handling of the increased impaired assets of licensed banks,” the central bank said.
“The Central Bank sought relevant stakeholder views including the banking industry and the Chamber of Commerce, when formulating these guidelines.”
The salient features of BRUs are as follows:
a. Licensed banks are required to have robust business revival and rehabilitation policies
and procedures to support revival of businesses.
b. Large banks with more than 50 branches, may consider establishing BRUs at large
branches/regional offices of banks, in order to support revival of businesses of affected
borrowers more effectively and efficiently.
c. Fundamental viability of a business is a key factor for the consideration of business
revival by a licensed bank. In the viability assessment, both financial and non-financial
indicators are taken into consideration.
d. Borrower’s continuous cooperation will be critical for the process of reviving a stressed
business.
e. The business can be revived through both financial and operational restructuring tools
and processes. The selection of appropriate set of revival tools is subject to a mutual
agreement of parties involving in the revival process.
f. Corporate borrowers who have outstanding credit facilities at multiple banks may agree
on a “Corporate Workout Framework” on a voluntary and mutually agreeable basis,
without the court intervention, to address financial and/ or business distress faced by
them. For this purpose, a “Corporate” is defined as a business with an annual turnover
above Rs. 1 bn, as per the audited financial statements, or cummulative outstanding credit
facilities granted by licensed banks are equal to or more than Rs. 250 mn.
g. Licensed banks are required to establish BRUs by mid-May 2024, and be fully compliant
with the requirements of the Circular by 01 July 2024.
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Sri Lanka banks to set up business revival units for troubled borrowers: central bank