An employee at the Bandaranaike International Airport walks past empty immigration counters. The country saw only 5,000 tourist arrivals in August. However, it was the highest monthly figure since the reopening of borders in late January – File photo
- CB gives further support to COVID-19-battered tourism sector by extending debt freeze till June 2022
- Existing relief was to expire on 30 September, latest initiative ensures longer period
- Interested individuals and enterprises need to request for extension from banks by 15 October
- Industry has been lobbying for estimated Rs. 350 b debt write-off in full or the interest component of Rs. 100 b
- Rapid vaccination and launch of new flights by Air France, Swiss and Aeroflot from November have lifted industry hopes of survival, though full recovery is likely end-next year or early 2023
The tourism sector impacted by the COVID-19 pandemic has been given additional support with the Central Bank (CB) extending the debt moratorium by a further nine months until June 2022.
The existing relief was to expire on 30 September. The latest extension is longer by nine months as opposed to the previous move of six months.
The Central Bank said the extension was provided with a view to enabling the industry to meet the challenges faced by businesses and individuals engaged in the tourism sector due to the ongoing COVID-19 pandemic.
The necessary directive for extension had been issued to licenced commercial banks by the Central Bank last week. The COVID pandemic-specific debt freeze was first initiated in August last year.
The Central Bank said licensed banks were allowed to offer any additional options to tourism sector borrowers on request in a way that the overall benefits were not less than those offered under the latest initiative.
The tourism industry has been reeling from the double whammy of the 2019 Easter Sunday terror attacks and the ongoing COVID pandemic, with the country virtually losing $ 4 billion in annual earnings, something which in turn has impacted the livelihoods of three million people.
In 2019, tourist arrivals fell to 1.9 million from 2.3 million in 2018, while earnings dipped to $ 3.6 billion from $ 4.4 billion. In 2020, arrivals plunged to 508,000 and earnings to $ 682 million.
Despite the re-opening of borders on 21 January, tourism has struggled, partly due to multiple waves of the COVID in Sri Lanka as well as restrictions in tourism generating markets.
In the first eight months of 2021, there had been only 24,377 tourists, with arrivals in August rising to 5,040, highest since the re-opening of borders. Earnings from tourism are estimated to have been $ 3 million in July and $ 26 million in the first seven months.
Rapid vaccination, along with announcement of new flights by several international airlines such as Air France, Swiss, Aeroflot from November, have lifted hopes of survival for the tourism industry, though expectation of a full recovery has been pushed to late next year or early 2023.
As per estimates, tourism industry borrowing is around Rs. 350 billion with the interest component being Rs. 100 billion. The industry has asked for a write-off of debt either in full, or at least the interest. The Government has been exploring the option of seeking multilateral donor help in this regard but so far there has been no major breakthrough.
As per the Central Bank’s latest directive, eligible borrowers (individuals and enterprises in the tourism sector) who wish to avail the extended moratorium should make a request on or before 15 October. Banks have been requested to accept any requests submitted after 15 October, if the reasons for delay in making such requests are acceptable.
However, the Central Bank has said any eligible borrower who has the capacity to service the loan repayment is expected to service such loan repayments instead of requesting for this extension.
Banks can convert the capital and interest falling due during the moratorium period commencing from 1 October 2021 to 30 June 2022 into a term loan. Banks can amalgamate the capital and interest falling due during the previous moratorium granted with amounts falling due during 1 October 2021 to 30 June 2022.
Banks can also commence recovery of such converted loans once the extended moratorium period is over.
The Central Bank has told banks to waive the accrued and unpaid penal interest as of 1 October, if any, on performing loans considered under the latest directive. Penal interest should not be accrued and charged during the moratorium period.
Banks can also restructure the existing credit facilities over a longer period, considering the repayment capacity of the borrower and an acceptable revival plan. In this case, banks and the borrower should agree on terms and conditions, including a concessionary interest rate, considering the prevailing low interest rates.
In the case where an eligible borrower has expressed his/her willingness to settle the existing credit facilities or amounts fallen due during the moratorium period, instead of opting for moratorium under the latest directive, banks are encouraged to provide interest rebates. Further, banks should waive early settlement fees and other fees and charges, including recovery of future interest of lease facilities, if any.
Banks also have been told to suspend all types of recovery actions against non-performing facilities until 30 June 2022, provided that such facilities have been classified as nonperforming on or after 1 April 2020. Further, licensed banks should take all the precautions not to excessively contact/force the borrower or visit the borrower as part of the routine collection procedure with regard to these borrowers. In instances where there is ongoing litigation in court relating to recovery, borrowers should enter into an agreement in the courts to obtain this concession.
Banks can account for the concession granted under this scheme as per guidelines issued by CBSL to banks on adoption of Sri Lanka Accounting Standards – SLFRS 9: Financial Instruments. Banks should identify the tourism sector as a risk elevated sector and provide accordingly. Banks can seek advice from the Institute of Chartered Accountants of Sri Lanka (CASL) and Auditors for additional guidance/clarification in this regard.
Banks are also required to seek necessary guidelines from the relevant agencies with regard to providing concessions for credit facilities granted under various refinance or interest subsidy schemes.
Additionally, banks should ensure that the borrowers are made aware of the structure of the deferment or restructuring of credit facilities prior to approval. In the case of a rejection of the application, banks should inform the applicant, preferably within 14 days, in writing/through electronic medium, the reasons for such rejection, and that there is an opportunity for the borrower to appeal against such rejection to the CB Director – Financial Consumer Relations Department (FCRD) requesting for a review. Banks should advise the applicant by and through the same letter of rejection that the applicant is entitled to duly avail himself of the review facility, if the borrower so wishes.