Monday, 20 January 2020 13:59

Moody’s warns of Sri Lanka government’s debt moratorium for SMEs

Moody’s has just become the latest global credit rating agency to extend warnings on Sri Lanka’s current economic status following the rating of country’s outlook negatively by Fitch and standard and poor’s (S&P) recently.

Moody’s has warned that Sri Lanka’s debt moratorium for Small and Midsize Enterprises (SMEs) is unlikely to support Sri Lanka’s economic recovery.

On 13 January, Central Bank issued guidelines on the debt moratorium for SMEs that the Government announced in December last year.

The debt moratorium is credit negative for Sri Lankan banks and the sovereign because it risks increasing SMEs’ risk appetite and relaxing their attitude toward debt repayments.
This in turn will undermine banks’ asset quality and constrain the sovereign’s credit profile. Moody’s Investors Service said.

The moratorium also applies to SMEs with poor credit bureau records and nonperforming loans.

Among the banks Moody’s expect the moratorium will most affect Hatton National Bank Ltd. (B3 stable, b22) and Sampath Bank PLC (B3 stable, b2) given that SME banking is one of their core businesses.

Meanwhile, Bank of Ceylon (B3 stable, b2) will be least affected because its loan book is largely exposed to state-owned entities and large domestic corporate.

UNP Parliamentarian Dr. Harsha De Silva disclosed that the country would struggle in obtaining foreign debt in future, due global agency down grading.

The Standard and Poor's (S&P) rated the country's outlook negatively. Three weeks before the Fitch also did the same, he told a media conference on Sunday19.

The outlook on Sri Lanka’s sovereign credit has been downgraded to ‘negative’ from ‘stable’ over recent tax cuts, but has confirmed an underlying rating of ‘B’, by the Fitch Global credit rating agency.

“Revision of the Outlook to Negative from Stable reflects rising risks to debt sustainability from a significant shift in fiscal policy and the potential for roll-back of fiscal and economic reforms in the aftermath of November’s Presidential elections,” Fitch said in a statement.



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