More credit facilities for SMEs needed - BoC Chairman

Indunil HEWAGE

The growth potential in the SME and Small and Medium Scale Industry (SMI) needs to be recognized owing to its capability to transform businesses in the country. Bank of Ceylon Chairman Dr Gamini Wickramasinghe said.

”The problem of relatively high lending rates gets accentuated due to segmentation in the credit market. Large companies manage to obtain good rates with banks while curtailing their overall interest cost,” he said speaking at a forum of the Institute of certified Professional Managers held recently.

”In addition to that, these have the option of accessing the capital market for funds. However, long-term risk capital as well as SME loans are scarce in the country.

Due to the adjustment from sub prime lending rates to large corporates, the high interest rates paid by SME may not always be in accordance with their risk profile,” he said.

He said banks need to work together to improve credit assessment capabilities pertaining to small-scale enterprise so that they can distinguish adequately between good and bad credit. Small scale must not always be equated with high risk,” he said.

The Chairman said more work should be put into various sub sectors and respective risk assessment of the SME and SMI sector. As an example, every significant change is taking place in the agricultural sector. Due to the state strategy in agricultural output and process improvement the needs for financing in various steps of agri value chain has become apparent.

Tremendous growth potential in the SME sector needs to be recognized and there is a need for repositioning of interest rates among a variety of segments of the financial market.

As the financial market develops, ideally the interest rates on all types of debt instruments, both in State and private sectors and in the credit market should support in a relatively small band, reflecting realistic risk premia. ”The banks should increase commercial lending as the SME sector is showing improvements. It is a timely need to revive the manufacturing sector and financing of the spurt of activities related to agricultural lending. This would need focused attention through specialized branches, sound credit assessment, adoption of sophisticated risk management techniques and better information sharing,” Dr Wickramasinghe said.