Sunday Nov 17, 2024
Sunday Nov 17, 2024
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In a circular issued on 24 March, where President Gotabaya Rajapaksa provided relief measures to assist businesses and individuals adversely affected by the COVID-19 pandemic, licensed commercial banks, licensed specialised banks and leasing companies were advised to implement a debt moratorium (on capital and interest) for six months. In line with this, the Central Bank of Sri Lanka issued an order for banks to suspend collecting loans for six months and provide working capital for business loans at 4%, as the country battled the coronavirus pandemic.
Five months on, CIMA Sri Lanka, together with the Association of Professional Bankers, the Institute of Chartered Accountants of Sri Lanka and the Finance Association of Sri Lanka, gathered an esteemed group of industry experts to assess the impact of this debt moratorium on the banking sector and practical aspects in adopting changes to financial reporting.
Moderated by Daily FT Editor Nisthar Cassim, the webinar commenced with a presentation by Institute of Chartered Accountants of Sri Lanka President Manil Jayesinghe, followed by a discussion with Association of Professional Bankers Sri Lanka President and Seylan Bank Chief Risk Officer Aruna Fernando, HNB Wholesale Banking Group Deputy General Manager Damith Pallewatte, NDB Director/Group CEO Dimantha Seneviratne, KPMG Sri Lanka Partner and Head of Banking Services and Markets Ranjani Joseph, Siyapatha Finance Head of Finance Ruwan Wanniarachchi, People’s Bank Chairman and BDO Partners Managing Partner Sujeewa Rajapakse, and Central Bank of Sri Lanka Assistant Governor Yvette Fernando.
Jayesinghe commenced his presentation by commending the CBSL on this timely moratorium, which he believes allowed the economy as well as the banking sector to stabilise during an uncertain time of the COVID-19 global pandemic. He went on to elaborate on the importance of recognising the implications of this pandemic and its impact on financial performance.
He highlights the importance of recognising impairments as a Day 1 loss on a business’s financial statements versus recognising it over a future period of time. “If not, you will continue to show reduced performance going forward, and anyone reading your finances may or may not understand the reason for the low performance in the future,” he explains. Rather, a one-time loss can be attributed to the pandemic situation, at the cost of helping businesses and the economy to continue on a recovery path.
Similarly, he cautions about the postponement in the recognition of losses during the moratorium period, as there may be a tendency to recognise and accept these as performing assets. According to Jayesinghe, there may be situations that the underlying business has suffered a significant increase in credit risk, and thereby must be moved into an underperforming asset category. With the moratorium deferring payments, all loans that would have gone into stage two and three have automatically been given breathing space of another six months now. In this event, banks need to be cautious and understand the increase in probability of default as a result of the pandemic, and manage underlying credit risks and respective impairment provisioning effectively.
He also identified certain industries that have experience elevated risks such as tourism and transportation. He commends the CBSL for providing these stressed industries an additional period of concession. Similarly, “There are other industries where opportunities will arise such as the IT industry,” he added.
People’s Bank Chairman Sujeewa Rajapakse spoke on behalf of the banking industry, and its respective challenges in meeting this moratorium. While ensuring the safety and security of his staff, in addition to maintaining social distancing and following healthy and safety guidelines, he says an additional challenge was creating awareness about this moratorium among eligible borrowers due to the non-availability of print or electronic media at the time.
However, he commends his staff for undertaking several proactive measures during the lockdown period such as webinars to create awareness, and thereafter in gathering borrowers’ requests and processing important documentation. “Another important factor was IT system adaptability, because banks have complex systems. However, we had a very good local team, who when the CBSL issued a circular overnight, they worked 24 hours and were able to support our half a million customers. As a responsible bank, I think the commitment from top to bottom has been there,” he said.
KPMG Sri Lanka Partner and Head of Banking Services and Markets Ranjani Joseph agreed with the former’s view on the importance of identifying impairments early without waiting for the end of the moratorium period, saying, “The risk function plays a very vital role during this period in order to assess the level of impairment that needs to be booked. Financial reporting is a consequence of business operations, so it cannot be considered as a standalone item,” she stressed.
“Banks are facing a lot of practical challenges because business cash flows are not available. But having said that, we also need to look at the reality that some businesses are not going to really pay the way we have structured loans. Therefore, banks need to push cash flows further to reflect a more realistic picture of the future,” she added.
Central Bank of Sri Lanka Assistant Governor Yvette Fernando spoke on the relief measures made available by the regulator to support the situation. “The rationale behind the debt moratorium was to facilitate the borrowers, which in turn will facilitate banks, because the situation was such that no one could pay these loans, not only in Sri Lanka but the world over,” she explained.
However, Sri Lanka’s position was dire due to the moratorium being the third one enacted within a span of a few years, owing to the Easter attacks in 2019 and certain economic downturns the country faced in the recent past, which worsened the situation ahead of COVID-19.
“Identifying the impact on profitability and earnings of the banking industry, we are trying to bring about some prudential requirements and adapting them so that there is some uniformity in the process followed. This in turn will allow the compatibility and transparency to take informed decisions to benefit the economy and all stakeholders,” she added.
According to her, a total of 1.4 million requests have been positively met under the debt moratorium, resulting in the capital of about 2.2 trillion being provided. “This shows that 90% of requests for the moratorium have been favourably considered by banks,” she said. Commenting on stressed industries like tourism and transportation, she says moratorium extension requests have been favourably considered.
Representing the Sri Lanka Banks’ Association (SLBA), Director and Group CEO of NDB Dimantha Seneviratne commented on the role the SLBA played in the height of the lockdown situation, working closely with the regulator, in payments and settlements. “We wanted to serve as the intermediary in this situation by establishing payment channels and mobile ATMs, etc. The banks themselves have given a moratorium for their own customers, in most cases more than what was driven by the regulator, as we wanted to assist them,” he said.
The SLBA also worked closely with regulators to introduce a funding scheme called the Saubagya scheme, which was recently revised up to Rs. 250 billion. “To last Friday, the Saubagya scheme had approved Rs. 95 billion worth of facilities in three phases, and disbursed Rs. 64 billion accrued at 4%, all to support customers during this difficult time.”
As President of the Association of Professional Bankers – Sri Lanka, Chief Risk Officer at Seylan Bank, Aruna Fernando says that, being formed 30 years ago as a discussion forum to enlighten bankers about contemporary banking issues, the Association’s vision is to be the powerhouse of professionalism for bankers in the country. “We ensured the money supply to the economy even during the lockdown.” Furthering its services, the association will be conducting a symposium next year to look into key areas and identify activities that will ensure economic revival.
Speaking on behalf of NBFIs, Siyapatha Finance Head of Finance Ruwan Wanniarachchi says the bank was able to take high risk in order to accommodate new entrants into the market. Siyapatha Finance has been effectively serving the bankable market segment in the rural and semi-urban areas, meeting the financial requirements of businesses, even during the lockdown period.
Concluding the discussion, HNB Wholesale Banking Group Deputy General Manager Damith Pallewatte feels the moratorium met the need of the hour in the country. “During the lockdown, people had no insight or foresight of economic recovery. So much so that our customers were hovering around to see what level of bank support was available. So the debt moratorium was actually somewhat of a relief offered to them,” he says.
The regulator of the working capital facility during the lockdown period specifically met expenses such as salaries, utility bills and essential supply payments, benefiting customers. According to him, the moratorium ensured people’s survival during the pandemic period and helped in reviving businesses. He highlights that, now, it is time for businesses not to defer payments and commence repayments at their earliest.
With the rise in the digital economy and working from home, production patterns and volumes have changed, which are some benefits of the moratorium. “We see a lot of room for improvement. It is important now to increase financial literacy in handling these moratoriums for the betterment of cash flow management and beyond,” he added.
