Sri Lanka pays off entire $200m loan from Bangladesh with $22m interest

Sri Lanka paid off the entire $200 million loan taken from Bangladesh with an additional $22 million as interest.

Confirming this, a central bank official told The Business Standard that last Thursday night, Sri Lanka paid the last installment of $50 million of their loan.

"In total, we received $22 million in interest from Sri Lanka beside the principal loan amount. Sri Lanka has regularly paid interest on loan installments despite delays. Earlier, Sri Lanka had repaid the $150 million principal loan in two installments," he said.

The official added that in the case of extending loans to Sri Lanka, it was stipulated to calculate the interest by adding 2% to the international benchmark, the London Interbank Offer Rate (LIBOR). The Bangladesh Bank has migrated to Secured Overnight Financing Rate (SOFR), as the reference rate replacing LIBOR since September last year.

When Sri Lanka took the loan the reference rate was very low, now it has increased to more than 5%. Due to these reasons the interest income from Sri Lanka has increased. In addition, due to non-payment of loan installments on time, they had to pay higher interest, the officials said.

In August 2021, the Bangladesh Bank disbursed the loan to Sri Lanka through currency swap. A currency swap is the process of taking a loan by depositing the lending country's local currency equivalent to the loan amount.

Sri Lanka was required to pay the interest on the loan every three months.

The repayment period of this loan was scheduled to end in May 2022. Later the repayment period was extended by one year as Sri Lanka could not repay the loan on time.