The crisis-ridden government is about to face another humanitarian issue in finding a redress for distressed borrowers and managing their grievances while safeguarding the banks and financial institutions following the March 31 expiry of moratoriums given to repay loans.

It has to take an urgent decision on this issue involving a large number of people suffering from high cost of living as they have already lost their incomes and savings,

Under these circumstances the Central Bank (CB) has been called upon to take prompt action on either extending the moratorium or winding it up by providing some relief for affected borrowers while protecting the banks and financial institutions.

The CB has already implemented several schemes to assist COVID-19 affected borrowers through financial institutions, CB sources said.

Among these schemes were extended repayment periods, concessionary rates of interest, working capital loans, debt moratoriums and restructuring/rescheduling of credit facilities for affected borrowers. But these schemes have not been adhered to due to the inability to make repayments by debtors.

However, a large number of small and medium enterprises in many affected sectors, three-wheeler owners, operators of school vans, lorries, small goods transport vehicles and buses, and private sector employees complained that several banks and financial institutions have demanded the settlement of loans or repayment of installments with added interest immediately.

Banks and financial institutions have already activated all types of recovery actions, including parate execution and forced repossession of leased assets, several SME and leasing associations complained.

When asked about these complaints, several general managers of licensed banks and CEO’s of finance companies noted that the CB has not issued guidelines on recovery actions following the expiry of moratoriums.

They said that banks and finance companies will have to look after the interest of depositors and it has to recover the loans given to borrowers without delay.

Therefore these institutions have already sent notices to borrowers reminding them of repayment dues indicating follow up action.

Commercial banks are likely to face continued asset-quality pressure in 2022 as the current economic situation has zeroed the borrowers’ repayment capacity and it will become a major issue with the conclusion of relief measures and loan moratorium from March 31, banking sector sources revealed.

The CB has also relaxed some non-performing loan (NPL) classification requirements, therefore the banks have desisted from classifying all credit facilities provided to borrowers as non-performing when the aggregate amount of all outstanding NPLs granted to such borrowers exceeded 30 per cent of total credit facilities.

Although it has helped to hold back a near-term increase in NPLs, a reversal in these guidelines following the lifting of loan moratorium would definitely increase the banks’ NPL ratios significantly, a leading banker said.

In line with the concessionary schemes implemented by the CB, financial institutions including banks have approved over 2.9 million requests for concessions amounting to a total of Rs. 4,083.8 billion prioritising the micro, small and medium enterprises

Joint Association of Leasing and Debt Installments Payers Media Secretary Sumedha Amarasinghe complained that the leasing companies are initiating action to cease and acquire vehicles of around five million distressed persons who have obtained leasing facilities from financial institutions.

President of the National Trade Protection Council (NTPC) Mahendra Perera has called on the CB to issue a clear directive to restructure their loans and reschedule concessional financing scheme helping them tide over the present difficult economic situation.

Most of these enterprises are facing liquidity and cash flow issues due to loss of sales and the delay in revival will lead to bankruptcy leading to the closure of their businesses and loss of jobs of workers, he warned.

A group of independent economists have launched an emergency plan of action with the aim of stopping further collapse of the economy and to stabilise over the medium-term.

The independent group of economists highlight that macroeconomics risks will continue to worsen if immediate action is not taken.

“Sri Lanka has run dangerously low on foreign reserves and faces the spectre of a ‘disorderly default’ on its debt obligations. Although a default may cause legal complications in debt restructuring negotiations and reputation damage for the future, much of the economic consequences of a sovereign default are already here.“

Therefore, the group of economists urge the Government to take the necessary steps to achieve this outcome immediately. Key signatories of the emergency plan further argue that a staff-level “agreement with the IMF can establish market confidence and help unlock bridge financing”.

The independent economists who are signatories to the document are Aneetha Warusavitarana, Anushka Wijesinha, Anushka Wijesinha, Asanka Wijesinghe, Chayu Damsinghe, Daniel Alphonsus, Deshal de Mel, Naqiya Shiraz, Rehana Thowfeek, Shiran Fernando, Thilina Panduwawala and Umesh Moramudali.

The economists said the emergency plan was due to Sri Lanka’s usable reserves dropping to levels of about $ 150 million. Additionally, acute shortages of essentials ranging from fuel to medicine have become prevalent. Increasing public discontent amidst increasing prices and shortages has led to large protests all across the country.

The country has reached a position where the country is unable to import essential fuel without the help of credit lines from bilateral partners. As the crisis reaches such depths, the Government and the administration have failed to come up with a credible economic plan capable of taking Sri Lanka out of a fully blown out economic collapse.