Monrovia, Dec 30 (Reuters) - The Central Bank of Liberia (CBL) has introduced stringent measures to alleviate the stress posed by the Ebola crisis on the banking system and the economy in general.
CBL says in the wake of prolonged school closure due to Ebola increasing debt burden on private schools that borrowed from banks, CBL will pay off the outstanding loan obligations from Kindergarten through high school.
Commercial banks have already provided the CBL with the list of schools and amounts involved, CBL Governor Dr. Mills Jones disclosed Tuesday at a news conference in the Monrovia.
The CBL Governor, Dr. Mills Jones spoke on the impact of the Ebola crisis on the financial system and measures put in place by the bank to mitigate the impact.
The Intervention
“This intervention serves two purposes: it helps to relieve the banks of the burden of re- provisioning, where the schools find themselves unable to repay the debts,” Jones said in statement.
According to Governor Jones “it helps to relieve the potential burden on parents who may already be experiencing financial difficulties from increased fees that schools may have to impose in order to meet the banks’ obligation.”
A CBL Governor said the bank will exercise dispensation on specific regulations to reduce the burden on Non-Performing Loans (NPLs) associated with the Ebola crisis.
Dr. Mills Jones says the move will “help commercial banks in restructuring and refinancing the private sector to ensure a rapid recovery of the economy.”
He said commercial banks have also agreed with the CBL to be flexible in the restructuring of delinquent facilities associated with the Ebola crisis.
Default Charges
“All default charges will be waived and some, if not all accrued interest, will be waived on a case-by-case basis,” Jones said.
“The repayment period to the CBL for all participating banks that received funds associated with CBL’s various stimulus initiatives will be extended by two years, and the interest rate reduced from 3-2 percent as a means of reducing the financial burden of the crisis on banks,” Jones said.
“As additional support to commercial banks, the interest on the CBL’s initiatives for the period of the Ebola crisis will also be waived,” Governor Jones said in statement.
He said commercial banks implementing the CBL’s stimulus initiatives are required to restructure delinquent facilities with a six-month grace period for resumption of payment.
The CBL as lender-of-last Resort will provide liquidity support to the banking system
Foreign Exchange Intervention
Dr. Mills Jones says the CBL’s intervention in the foreign exchange market in July and November 2014 helped reversed the rate of depreciation of the Liberian dollar during the first half of 2014.
Governor Jones said the CBL pumped in US$30 million as part of its intervention strategy to stabilize the foreign exchange market and helped to contain inflation.
“In fact the exchange rate has appreciated by 10.8 percent to Liberian $82.5 to US$1 at end of November, from Liberian $92.5 to US$1 at end of first week in July 2014 before CBL increase intervention while inflation stood at 7.9 percent end of November, 2014,” Jones said.
He said the banking sector recorded decline in key balance sheet indicators.
“Total assets which have been on the rise declined by 2.7 percent between June and October, 2014; total deposits by 2.8 percent; total loans and advances by 7.2 percent; and total capital by 4.2 percent during same period,” Jones said.
He said the Ebola Virus Disease (EVD) has had a “negative impact on the economy.”
“Projections show that growth of the economy, which was expected to average 6.6 percent over the next three years before Ebola epidemic, is now expected to slow down to only about 1 percent,” Jones said.
Structural Weaknesses in the Economy
He said the situation could lead to rising unemployment and increased poverty and urged focus on the structural weaknesses in the economy so as to withstand shocks, similar to that stemming from Ebola.
He suggested sustainable domestic food production, especially rice demanding a review of existing regime for rice importation for consideration of government’s Economic management Team.
According to Governor Jones “The goal being to capture some of the profits from rice importation for domestic investment in rice production, the nation’s staple food, rice.”
“Even as we take short-term measures to stabilize the economy, we should look beyond just recovery, which could leave the economy with the same vulnerabilities that we are now experiencing, making the country susceptible to a vicious circle of poverty and under-development.”
Additional Measures
Governor Jones said the bank was “working with government to ensure that road contractors carrying out project for the government are able to service their obligations to the banking system.”
He said the CBL is “Adopting a more robust monitoring system over the banking industry to ensure that systemic problems arising from the sector are addressed on a timely basis.”
Governor Jones said the CBL is working with “partners to mobilize financial resources to support critical sectors of the economy, such as agriculture, manufacturing and small and medium size enterprises.”