Central Bank extends Sri Lanka loan repayment deadline by one year

A loan worth $200 million was extended to Sri Lanka in three phases

TBS Report

08 May 2022, 22:30

Last modification: May 08, 2022, 10:36 p.m.

General view of a protest area, dubbed Gota-Go village, where people are gathering against Sri Lankan President Gotabaya Rajapaksa near the presidential secretariat, amid the country’s economic crisis, in Colombo, Sri Lanka, April 11, 2022. REUTERS/Dinuka Liyanawatte

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General view of a protest area, dubbed Gota-Go village, where people are gathering against Sri Lankan President Gotabaya Rajapaksa near the presidential secretariat, amid the country’s economic crisis, in Colombo, Sri Lanka, April 11, 2022. REUTERS/Dinuka Liyanawatte

The Bangladesh Bank has extended the repayment term of a $200 million loan to Sri Lanka by one year, given the dire situation in the country at present.

This decision was taken during the meeting of the board of directors of the central bank on Sunday.

Sri Lanka secured a loan from central bank reserves to overcome the economic crisis.

In the first installment, the country received $50 million on August 18 and another $100 million in the second installment on August 30. Later, another $50 million was paid.

A central bank official said the deadline for Sri Lanka to pay $50 million was May 18, with $100 million due May 31 and the remaining $50 million due June 12.

Loans must be repaid in a “currency swap” system.

Sri Lanka had three months to pay the first installment and at that time the interest rate was LIBOR + 2%. LIBOR or London Interbank Offered Rate is the conventional interest rate for short-term loans internationally.

Sri Lanka was given an additional three months to repay the loan in the first three months. However, the interest rate remained the same for the following three months. For the new six-month period, the interest rate will be LIBOR + 2.5%.

Eastern Bank fined Tk 5 lakh, waiver request denied

At Sunday’s board meeting, Eastern Bank Ltd (EBL) was fined Tk 5 lakh for extending an additional loan over the limit, rejecting the bank’s waiver request.

A senior central bank official, who was present at the board meeting, told The Business Standard that the bank is a sensitive institution and there is no room for error here. Thus, anyone making a mistake will be punished so that no one makes such a mistake.

Earlier, Bangladesh Bank fined Eastern Bank Tk5 lakh on April 3. The bank was asked to pay the fine within 14 days, failing which a letter would be sent to the managing director informing him that the amount would be deducted from the bank’s account.

EBL requested an exemption without paying the fine.

EBL extended loans to its subsidiaries EBL Finance (HK) Limited and EBL Securities beyond the credit limit without any central bank approval. The bank gave an explanation for this on December 19, which the central bank did not accept.

In accordance with the Bank Company Act 26 (Kha), the loan amount given to an individual, company or group cannot exceed 25% of the bank’s capital reserve.

At the meeting, the central bank also accepted the request for extension of time to increase the paid-up capital of Bengal Commercial Bank to Tk 500 crore.

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