BB extends loan repayment term for Sri Lanka

The Bangladesh Bank on Sunday extended loan repayment terms for crisis-hit Sri Lanka by a year, as the island nation defaulted on all of its $51 billion in foreign loans.

The decision on the extension was taken at a meeting of the central bank’s board on Sunday, chaired by its governor Fazle Kabir, sources said.

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

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

Under the initial terms, Sri Lanka was allowed to use the loans for up to one year with a clause renewing every three months.

Sri Lanka was therefore supposed to repay the loans in three phases by September 2022.

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

Under the currency swap agreement, Bangladesh will receive 2% plus LIBOR as interest on the loan amount.

If the principal of the due date remains unpaid even after six months, the applicable interest rate has been set at 2.5% plus LIBOR.

The loan was sanctioned in Sri Lanka when the Bangladesh Bank’s reserve hit an all-time high of $48.06 billion in August 2021.

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

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

With the reserve in August 2021, Bangladesh was able to pay import bills for 8.39 months, but the decline in the reserve has worsened the country’s capacity in recent months.

Bangladesh Bank data showed that in March this year, the country was able to pay import bills for 6.1 months while its foreign exchange reserve was $45.15 billion.

On the other hand, the Sri Lankan government is facing massive public protests due to its inability to fund imports of goods and commodities, forcing the authority to announce an emergency to deal with the situation.

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

Meanwhile, the central bank at Sunday’s meeting also rejected a plea by Eastern Bank Limited to reconsider a decision by the BB which fined the bank Tk 5 lakh.

Bangladesh Bank slapped the penalty for issuing loans by EBL in breach of single borrower exposure limit.

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