In line with govt’s doubling of Per Capita Income:

Business confidence, climate stimulates credit growth

Ravi LADDUWAHETTY

The overall growth in investor confidence and the investor climate prevailing in Sri Lanka has seen the rise in loans to business from Sri Lanka’s commercial banks rising to Rs 1,666.4 billion up to May 2011 from the Rs 1,630.7 billion for 2010. This is an increase of Rs 33.9 billion between the corresponding periods of the two years.

The breakdown of the Rs 33.9 billion has also been a rise in the Rupee denominated loans by Rs 30.5 billion and foreign exchange loans rising by Rs 3.4 billion, which is also in accordance and in line with the government’s proposed idea of doubling the Per Capita income by 2015.

Commercial bank loans to business for the period January to May 2011 rose 33.3 percent and by Rs 416 billion up from the 31.4 percent for the period January to April 2011.

The growth in Rupee denominated loans was 35.1 percent.

Last week, the Central Bank said that private sector credit may slow during the rest of the year.

New loans have been estimated at around Rs 30 billion in recent months.

Credit to government from banks rose 13.6 billion Rupees 476.9 billion Rupees in May through year to date growth was flat at 2.9 percent.

Central Bank credit to government (printed money) fell to 95.6 billion Rupees from 98.4 billion Rupees a month earlier. Loans in dollars to private business rose by Rs 3.4 billion Rupees to Rs 180.4 billion.

Though Rupee interest rates are now low compared to earlier rates and the prime lending rates is now around 9 to 10 percent, dollar loans yields are in the mid to low single digits.

The International Monetary Fund said last month that trying to figure out how to lock up excess liquidity so that it doesn’t go into irresponsible credit growth and unnecessary inflation, is a very important thing.”

The Central Bank should be vigilant to avert the possibility that excess liquidity in the monetary system could overheat credit growth and spur inflation in future, the International Monetary Fund (IMF) said last month. The Central Bank in January surprised the market by breaking with Asian counterparts to loosen policy rates to stimulate growth. However, economists had raised concern that excess cash in the system could aggravate inflation already pressured by higher food and oil prices.