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by Channa Kasturisinghe

Sampath Bank is keen to lower its interest rates on lending for customers to assist industry, manufacture and export sectors at a time when the country's economy is in a difficult situation, the Bank's Assistant General Manager (Treasury), Ruwan Cooray told the Daily News.

He said the Central Bank's decision to bring down the interest rates was a positive sign as lower rates are essential for any economy to develop.

"This would enable industrialists, manufacturers and exporters to take loans as at lower interest rates which will eventually reduce the cost of production. For instance, the USA brought down interest rates significantly this year to boost the slowing economy,"

Today our country's economy too is facing difficulties due to various reasons. Although the banking sector is also affected we have to help our clientele, especially in the export and agricultural sectors. It is important to reduce the trade deficit, balance of payment deficit and current account deficit and ensure the stability of our currency, he said.

He said the Central Bank's move would allow commercial banks to lend at lower interest rates and Sampath Bank has already reduced interest rates.

"We are willing to reduce interest rates further but we have to look at our cost of funds. Although the state banks reduced lending rates significantly commercial banks were not able to follow suit due to the cost funds.

As government borrowing went up the Treasury had to increase the yields on treasury bills and bonds to attract more investments. As a result Commercial Banks had to increase the deposit rates that we are paying to customers.

With the interest rates going up, there was a drift from the commercial banking sector to the Treasury. Commercial banks had to compete with the Treasury otherwise deposits would go to the Treasury in the form of Treasury Bills. As a result of this the commercial banks had to increase the lending rates to meet the increasing cost of funds.

Customers who had deposits at lower rates of interest insisted that commercial banks should uplift their deposits and reinvest the deposits at higher rates. Those very customers who are enjoying a higher yield at present will not allow the banks to reduce the rates of the existing deposits. Until these deposits matured the banks will have to pay the initial interest rates," Mr. Cooray said.

However, he said that there is a possibility of reducing interest rates at the next renewal, thereby bringing the cost of funds down and there are many one-month deposits which would mature next month.

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