2. SRI LANKA BANK LENDING RATE
Bank Lending Rate in Sri Lanka decreased to 14.30
percent in January of 2013 from 14.40 percent in
December of 2012. Bank Lending Rate in Sri Lanka is
reported by the Central Bank of Sri Lanka. Historically,
from 1997 until 2013, Sri Lanka Bank Lending Rate
averaged 13.97 Percent reaching an all time high of
23.20 Percent in January of 2001 and a record low of
8.90 Percent in November of 2003. In Sri Lanka, the
Prime lending rate, is the average rate of interest
charged on loans by commercial banks to private
individuals and companies. The prime rate is estimated
weekly by the Central Bank of Sri Lanka.
4. LENDING TO NON RESIDENTS
Domestic Bank Units of licensed commercial banks
and licensed specialised banks are not allowed to lend
to non-residents including companies incorporated
outside Sri
Lanka at present due to the capital account control.
However, Offshore Bank Units of licensed commercial
banks are allowed to lend to non-residents without any
restrictions in the provisions of the Banking Act and
the Banking (Offshore Banking Scheme) Order of
2000 issued by the Central Bank.
5. STEADY POLICY RATES BY BANKS IN 2009
Sri Lanka's central bank held policy rates steady at 11.00
percent during the month of Aug, 2009 saying market
interest rates were falling, inflation is bottoming out but
expected to remain at single digits in 2009.
According to the Central Bank report the average weighted
prime lending rate has declined by about 415 basis points,
by July 2009. Sri Lanka's commercial bank prime lending
rate, a price given to a bank's best clients averaged 14.18
percent on August 14, 2009 according to Central Bank data.
Credit to private sector from commercial banks fell 5.2
percent to 1,212 billion rupees in June compared to
December 2009.
6. Economic Environment in Sri Lanka with Relevance to
ADB Policy-Based Loans
1986−1991
• Unstable macroeconomic environment
• Persistent budget deficit
• Distorted pricing of agricultural inputs and products
• Lack luster agriculture sector performance
• Loss-making state-owned enterprises
• High financial intermediation costs in the financial
sector
1992−1999
• During this period, there was no new ADB policy based loan
7. CONTD.
2000–2004
• Initiatives to promote governance
• Efforts to improve public enterprise management
• Growing budget deficit and deteriorating fiscal
performance
• Public debt exceeded 100% of gross domestic
product from 2001 to 2004
• Efforts to improve policy and regulatory framework
• Efforts to improve institutional performance
• Underdeveloped rural financial markets
• Continuing labour market rigidities
2005 to Date
• Government emphasis on the role of the public
sector
• Efficiency improvements of state-owned enterprises
• Government will not privatize state-owned entities
8. LENDING POLICY ADOPTED BY THE CENTRAL BANK OF
SRI LANKA IN THE YEAR 2012
The Central Bank of Sri Lanka (CBSL) announced that it had raised policy rates
for the first time since 2007 in a bid to check runaway credit growth. The Bank
has hiked rates by 50 basis points and enforced a credit ceiling in the face of
pressures. The repurchase rate and the reverse repurchase rate of the Central Bank
was 7.50 per cent and 9 per cent respectively.
The Board viewed with alarm the “continuous increase in credit extended to the
private sector by commercial banks” and said that this needed to be addressed to
curtail import-related credit (thereby reducing the trade deficit and the current-
account deficit) and ensure that inflation remains at the mid single-digit levels in
the second half of 2012 as well.
The Monetary Board also decided to direct commercial banks to moderate their
credit disbursements so that the overall credit growth in 2012 does not exceed 18
per cent of their respective loan book outstanding at the end of 2011. Credit
growth of up to 23 per cent will be allowed for those banks which finance the
excess up to 5 per cent of the credit growth, from funds mobilised from overseas.
9. IMF’s VIEW OF THE LENDING POLICY OF 2012
IMF welcomed the hike in rates and credit ceiling, saying that this
would help rein in loan growth and narrow a widening external
deficit in Sri Lanka. The IMF maintained that exchange rate
flexibility should be part of the policy package.
“There was broad agreement that a decisive policy response was
needed to put the economy on a sounder macroeconomic footing,
especially given the current uncertain global environment,” said
Brian Aitken, who led an IMF review team, in a statement.
10. Conclusion
As was the case in 2012, the CBSL will
continue to safeguard the flexibility of the
lending policy in line with changing global
conditions and ensure predictability through
effective communication. The lending
policy will continue to contribute to the
sustainable growth prospects of Sri Lankan
economy in the context of price stability.
