Credit Trend

June 17, 2013 (LBO) – Sri Lanka’s credit to private business fell to a three year low of 7.6 billion rupees in April 2013 the lowest since May 2010, with state borrowings continuing to crowd out other loans. Contractions in central bank credit help build up foreign reserves and keep the exchange rate strong but it also can reduce total credit.

Sri Lanka is recovering from a balance of payments crisis in 2011 and 2010.

Sri Lanka’s bank interest rates have been high due to heavy state borrowings crowding out the private sector, despite rate cuts from the Central Bank.

Credit to private business slowed to 10.2 percent to 2,403.2 billion rupees, slowing from 10.9 percent in March.

New private borrowings in April at 7.6 billion rupees was the lowest since May 2010 when 7.2 billion rupees was loaned to private business when the country was recovering from a balance of payments crisis in 2008 and 2009 as interest rates rose.

In 2009, the government ran a budget deficit close to 10 percent of gross domestic product. This time Treasury bill yields have fallen faster, with the government borrowing more from banks, which have kept bank lending rates high.

In 2009 private credit became neg