'Credit delivery backbone of banking, finance'

Ramani KANGARAARACHCHI

Credit delivery is considered to be the backbone of banking and finance without which the banking and financial systems cannot operate profitably, Centre for Banking Studies Director Udeni Alawattage said at the inauguration of a five day international seminar commenced at Rajagiriya last Monday.

He said when the entire economy is taken as an analogy or a metaphor of a human body, the financial system could be treated as the blood circulation system through which the nutritional credit is being distributed for effective functioning of the real sector and entire economy at large. If the nutrition or credit gets contaminated it has a tremendous negative impact on the entire system. The instability of the global financial infrastructure created as a result of the recent global financial crisis is a classic example.

He said that the global crisis was initially triggered by micro organizational level risky credit exposures in the individual financial institutions particularly US sub prime mortgage market.

Alawattage further emphasizing the gravity of the recent financial crisis said the total cost of the bail out package of the crisis was estimated at massive US $ 23.7 trillion which is equivalent to 600 years of GDP for a developing country like Sri Lanka.

Therefore the credit operations work can be considered as a double edged sword which can create either stability or instability of the micro level financial institutions and financial market as a whole.