Sri Lanka to Triple Refinance Facility Limit for Banks

The tripling of the limit was proposed to the Cabinet following complaints from various parties that they had not received relief from their banks.

The CBSL (Central Bank of Sri Lanka) will extend the limit of its refinance facility for banks by  to LKR 150 billion (USD 811 million), to channel additional working capital loans to businesses adversely affected by the Covid-19 pandemic.

The ‘Saubagya Covid-19 Renaissance Facility’, first announced in late March, was initially set up with an LKR 50 billion limit, in an effort to supply licensed banks with liquidity to lend to businesses.

The tripling of the limit was proposed to the Cabinet by President Gotabaya Rajapaksa, following complaints from various parties that they had not received relief from their banks. The Cabinet decision to adopt the limit increase was revealed on Wednesday (3 June) by Co-cabinet spokesman Minister Bandula Gunawardena.

“The government wanted to increase the limit considering the volumes of working capital loan applications that were coming in,” said S. R. Attygalle, Secretary to the Ministry of Finance.

Due to the sheer quantity of the applications, the CBSL in April requested banks to initially process LKR 25 million to LKR 10 million in loans. “The CBSL asked banks to give priority to applications which were seeking a moratorium for obligatory expenses such as electricity, water bills and salary payments,” a commercial banker said.

Loans granted to businesses under the facility are limited to two months working capital, and should be repaid over a maximum of two years at an interest rate of 4 percent per annum.

Each bank was allocated a lending quota by the CBSL, which they are not permitted to exceed. Although the specific quota amounts were not publicly announced, CBSL officials said large banks were allocated LKR 8 billion each, while smaller banks were given quotas between LKR 5 billion and LKR 2.5 billion.

According to industry sources, banks have been struggling to cope with the high volume of loan applications, as most have received more loan requests than they are permitted to lend.

For instance, one large commercial bank has received 45,000 applications, seeking loans of more than LKR 9 billion, while another that was allocated a LKR 5 billion quota has received applications worth LKR 30 billion.

Meanwhile, bankers are seeking clarity on the new announcement to raise the facility limit.

The CBSL will communicate its directions to banks in due course, Attygalle had said.

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