Sri Lanka debt relief measures have been strengthened under a fresh Central Bank directive aimed at supporting borrowers affected by recent flooding. The initiative seeks to stabilize households and businesses while reinforcing confidence in the financial system.
Sri Lanka debt relief measures expanded to help flood-hit borrowers under new CBSL directive
The Sri Lanka debt relief measures announced this week mark a significant step in the country’s ongoing efforts to help borrowers recover from severe flooding that disrupted livelihoods and damaged assets across multiple regions. The Central Bank, working in coordination with licensed banks, has introduced a structured package that includes temporary repayment suspensions, access to new credit facilities, relief from fees, and enhanced protections for applicants who have faced financial setbacks. This initiative mirrors the flexible assistance deployed during the pandemic years, though it is more targeted and based on individual assessments.
According to the Central Bank’s newly issued circular dated December 5, all licensed banks must extend a moratorium on capital and interest payments for a period ranging from three to six months. This is to be granted on a case-by-case basis to borrowers who can demonstrate that the recent floods have impaired their ability to service existing loan facilities. The directive explicitly states that banks may not impose interest above the originally contracted rate during this suspension period. Furthermore, institutions must ensure that deferred interest does not accumulate further charges, preventing borrowers from becoming trapped in spiraling repayment obligations once the moratorium ends.
The new measures differ from the blanket relief provided during the pandemic. In 2020 and 2021, the Central Bank offered broad moratoriums and infused liquidity into the banking system to stabilize operations during repeated waves of uncertainty. Those interventions provided nation-wide financial breathing room. The current program, however, is more focused, providing flexibility to tailor assistance to borrowers whose properties, businesses, and income sources were directly impacted by the flooding. This calibrated approach enables banks to manage risk more effectively while still ensuring support reaches those in need.
Another major component of the Sri Lanka debt relief measures involves the introduction of new loan facilities for flood-affected borrowers. Banks have been instructed to evaluate applicants individually and provide funding where repayment capacity can reasonably be established. The Central Bank mandates that new loans carry a minimum grace period of three months after the borrower completes the moratorium period on existing debt. This arrangement ensures there is sufficient time for borrowers to begin restoring their income streams before repayment obligations resume.
New facilities with maturities of up to two years must be offered at a maximum fixed interest rate of nine percent annually or at the customer’s existing contractual interest rate, whichever is lower. This cap is intended to keep financing costs manageable during the recovery period. For loans with terms longer than two years, the Central Bank permits banks to revise the interest rate at the end of the second year. Any such revision must be linked to the average weighted prime lending rate and strictly follow the terms set out in the loan agreement. This maintains transparency and minimizes unpredictability for borrowers.
Fee relief also forms a substantial part of the Central Bank’s directive. Banks must suspend charges for cheque returns, stop payments, late payment fees, credit restructuring or modification fees, and penal interest on all affected credit facilities until January 31, 2026. If charges are automatically imposed through system-generated entries, banks are required to refund the affected accounts within three business days. The Central Bank emphasized that clear communication is essential, instructing banks to ensure borrowers understand all terms, conditions, and cost structures linked to any modifications or new financing.
An important consumer protection measure included in the directive prohibits banks from rejecting loan applications solely based on negative information recorded with the Credit Information Bureau (CRIB). This requirement recognizes that many flood-affected borrowers may have recent repayment difficulties that do not reflect their long-term creditworthiness. By discouraging automatic rejections, the Central Bank aims to preserve access to credit for individuals and businesses working to rebuild.
The flood-related disruptions have added pressure to communities that were already navigating economic recovery challenges. The Central Bank’s updated policy package reflects the need for both immediate relief and sustainable recovery pathways. By balancing borrower support with financial system stability, the directive seeks to minimize defaults, promote business continuity, and reduce strain on households.
Although the new measures are not as sweeping as those implemented during the pandemic, they demonstrate the Central Bank’s continued readiness to respond decisively to crises. As the aftermath of the flooding continues to unfold, the targeted support provided through these policies is expected to play a critical role in restoring economic activity in affected regions. The clarity of the guidelines, combined with the emphasis on fairness and transparency, offers a foundation for both short-term relief and long-term resilience.