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Flood-hit borrowers get 3-month moratorium

31 May 2017 10:03 am - 0     - {{hitsCtrl.values.hits}}

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The Central Bank has instructed all banks to grant a moratorium on loans obtained by the borrowers hit by the floods and adverse weather conditions in a bid to provide some relief until they get back on their feet, Mirror Business learns. 
To this end, the monetary authority has sent clear instructions to all banks, asking them to suspend the repayment of loans by such borrowers up to three months with 
immediate effect. 
This directive was a result of a meeting between the heads of the country’s banking sector and Prime Minister Ranil Wickremesinghe at the Temple Trees on the 29th. 
Usually taken in times of economic crisis, such as an earthquake or flood, a moratorium provides people with time to stabilize their finances before dealing with potential problems, such as a mortgage default and foreclosure.
Moratorium is a legally binding halt against the right to collect debt by a lender, the bankruptcy law states. 
However, the Central Bank is believed to have asked the banks to consider extending such moratoriums on a case-by-case basis as willful defaulters could make most of the opportunity. 
The recent floods and adverse weather conditions – the worst in 13 years– have so far claimed nearly 200 lives, according to reports received when this paper went to print, and another 100 people reported missing.
The financial loss caused by this catastrophe on infrastructure, businesses and personal belongings are yet to be estimated but likely to reach several billions of rupees. Sri Lanka has never felt the need to build a contingency fund for disaster management and relief measures despite many natural and man-made calamities during the last two decades, which claimed thousands 
of lives.   
An annual budgetary allocation to build a fund for such purposes could have been easily done but such had been absent in successive budgets. The political masters are in the habit of begging for relief from anyone they can think of when a 
disaster strikes. 
Also, such unpreparedness catches the general treasury off guard and sends the country’s volatile economy on a bumpy road.   
Meanwhile, the Sri Lankan banks, which have already seen some uptick in bad loans due to higher interest rates and taxes, are likely to see further accumulation of sour loans due to the floods affecting as many as half a million people, the sector analysts warn. 
Apart from the moratorium, the Central Bank has also directed the banks to waive the penal interest on overdue loans and advances of the flood-hit borrowers.

 Yesterday, Mirror Business exclusively reported the Central Bank’s move to allow banks to price their loans and charge penal interest rates on overdue loans according to their internal policies starting from July 1, 2017.
News reports said the government was also planning to develop new schemes to provide easy credit to the flood-affected in a bid to assist them in getting back on their feet as soon as possible. 
Although such relief is necessary, measures like these could place the country’s volatile financials in dire straits, derailing the fiscal stabilization programme it has committed itself to. 

 

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