Apr 09, 2014 (LBO) – Sri Lankan firms have got the nod to borrow 335 million US dollars abroad 2013 by the Central Bank, while debt markets also supplanted bank loans in 2013, as commercial bank credit to private firms slowed, an official said. Analysts say it is important to allow for a period of de-leveraging which is a part of the so-called ‘business cycle’ where banks and private borrowers can purge bad credit in the system that were built-up during the bubble years of low interest rates and money printing.
Private firms that over-leveraged themselves with acquisitions and borrowings during the credit and economic bubble would also get an opportunity to reduce loans, raise equity funding or sell parts of the businesses to others who were less leveraged.
Analysts say in 2008/2009 balance of payment crisis and credit bubble bad credit built up around a property bubble in especially in the sub-prime non-bank lending sector as well as loans to state energy utilities to subsidize customers.
In the 2011/2012 it was seen in gold-backed loans and loans to fund subsidies by state energy utilities. Over 2013 state enterprises also repaid some of their credit, though a drought over the past quarter is reversing the trend.