State banks left holding only comfort letters for massive debts run up by UL


By Rathindra Kuruwita

Cabinet of Ministers had approved a decision taken by the Treasury to provide comfort letters as securities to loans SriLankan had taken from state banks instead of Treasury Guarantees, Secretary to the Cabinet of Ministers, Sumith Abeysinghe told the Presidential Commission of Inquiry (PCoI) on irregularities at SriLankan Airlines, SriLankan Catering and Mihin Lanka yesterday.

A comfort letter is a ‘written statement issued by an outside auditor, stating that there is no inaccurate or misleading information in the prospectus of an entity that is issuing securities.’ Comfort Letters can either be legally binding or non-legally binding. On the other hand in a treasury guarantee, ‘the guarantor undertakes to pay to the third party the amounts which the guaranteed party fails to pay’.

Appearing before the PcoI, Upul Kumara Dias, Manager Offshore Branch of the Bank of Ceylon (BoC) said that the treasury had given comfort letters for three rupee loans it had given to SriLankan to the tune of Rs. 12.9 billion and three dollar loans amounting to USD 100 million. He added that the bank had been attempting to get guarantees from the Treasury for some time but to no avail.

"All of these loans have been guaranteed by the Treasury, but they keep on extending the date of the letters of comfort and guarantee so that they don’t become non-performing loans. The airline pays the interest."

Dias also said that while they had received large sums as interest, the loans had not been paid back and the airline was only paying the interest to the bank. "If we had these funds we could have given them as loans under new terms and conditions. When institutions don’t pay back the loans they have taken, we can’t issue new loans. That’s why we have been trying to get the airline and the Treasury, which has issued treasury comfort letters as securities, to pay back the loan in cash without going for a restructuring of the loan."

He said that the BoC and the People’s Bank had been requested by the government to prop up the ailing airline until the government finalised a Public-Private Partnership (PPP). Since both SriLankan and BoC were government owned institutions, they had also asked the government to provide them with the report, drafted by the PPP committee to decide what they should do in the future. There had been no response, he added.

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