Saturday, June 10, 2023

Bangladesh Bank extends loan repayment tenure for Sri Lanka

The Bangladesh Bank on Sunday extended the loan repayment tenure for crisis-stricken Sri Lanka by one year as the island nation is in default on its entire $ 51 billion foreign loans.

The decision on the extension was made at a board meeting of the central bank held on Sunday, with its governor Fazle Kabir in the chair, sources said.

In August 2021, Bangladesh extended the credit facility amounting to $ 200 million under a currency swap deal with Sri Lanka.

The loans were released in three phases on August 19, August 30 and September 21 in 2021.

Under the initial conditions, Sri Lanka was allowed to use the loans for up to one year with a renewal clause in three-month intervals.

So Sri Lanka was supposed to clear the loans in three phases by September, 2022.

Under Sunday’s board decision, the island nation would get one year on top of the repayment deadline of August, October and November of 2022.

As per the currency swap agreement, Bangladesh will receive 2 per cent plus LIBOR as interest on the loan amount.

If the instalment principal remains unpaid even after six months, the applicable interest rate was set at 2.5 per cent plus LIBOR.

The loan was sanctioned to Sri Lanka when the Bangladesh Bank’s reserve reached a record high of $ 48.06 billion in August 2021.

The country’s reserve, however, eroded by more than $ 6 billion in the past eight months, with the asset dropping to $ 41.9 billion amid an unusual surge in import payments in the first nine months of the current fiscal year of 2021-2022.

The gradual decline in the country’s reserve also deteriorated the country’s import payment capacity.

With the reserve in August 2021, Bangladesh was capable of paying import bills for 8.39 months, but the drop in reserve worsened the country’s capacity in recent months.

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The Bangladesh Bank data showed that the country in March this year was capable of paying import bills for 6.1 months when its foreign exchange reserve was $ 45.15 billion.

On the other hand, the Sri Lankan government is facing massive public protests due to its failure to finance imports of basic goods and commodities, forcing the authority to announce an emergency to tackle the situation.

The country was also seeking finance from international donor agencies and friendly countries to tackle the situation. The country’s foreign exchange reserve was hovering around $ 2 billion with its due loan payment of around $ 8 billion in 2022.

Meanwhile, the central bank at Sunday’s meeting also rejected a plea of Eastern Bank Limited to reconsider a BB decision that slapped Tk 5 lakh in fine on the bank.

The Bangladesh Bank slapped the penalty for issuance of loans by the EBL in violation of the single borrower exposure limit.

– New Age Bangladesh 

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