Banks hail limiting of lending portfolio for buying equities

Ravi LADDUWAHETTY

The banking community yesterday hailed the Central Bank directive to limit the lending portfolios for the purchase of equities in the Colombo Stock Exchange, claiming that it was a move in the right direction.

“This is indeed a move in the right direction where the regulator stepped in at a crucial juncture as the lending for purchase of stocks were getting out of hand,” Chairman of the Banks’ Association and Sampath Bank Managing Director and CEO Harris Premaratne told Daily News Business yesterday.

This is what the regulator has wanted in the best interests of the banking industry, he said, adding that all the banks will comply with it to the letter.

These comments from the Banks’ Association Chairman to this newspaper is a sequel to the Central Bank, last Friday, issuing an eight- pronged directive, alerting all licensed banks to limit their lending portfolios to less than 5 percent for the purchase of stocks and also and to limit the bank guarantees that exceed 50 percent per application or per bank, among others.

He said the lending of the banks was getting out of hand where high net worth individuals were presenting bank guarantees to the banks without placing that money in the banks and that was one of the main reasons for the Initial Public Offerings being oversubscribed by many fold.

There were instances that IPOs were over subscribed by several fold such as 300 times and even with that, none of the investors who applied for these shares ever got the same amount that they applied for and there were instances that a single investor had applied to purchase the whole issue.

Therefore, it is in backdrop that the Central Bank, as the regulator stepped in and the move itself is very sensible as the banks themselves assess their risks from time to time, he said.

Commercial Bank Chairman Mahendra Amarasuriya said the move will mitigate unlimited risks and exposure and hailed the move to restrict uncontrollable advances.

“Now, banks will be cautious and the move by the Central Bank is laudable,” he said.