Credit Trend

Jan 17, 2012 (LBO) – Sri Lanka’s credit to business from commercial banks rose to a new historic high of 63.2 billion rupees in November helped by liquidity injections to offset foreign exchange interventions, official data showed. In the 12-months to November 2011, credit to business grew 33.5 percent to 1,945.7 billion rupees against 33.4 percent in October, central bank data showed.

State Credit

Credit to government also grew at a new annual high of 42 percent to 801.5 billion rupees, up from 33.4 percent in October.

Loans to the state from the banking system was largely driven by Central Bank credit as the monetary authority bought government securities to back liquidity injections made to offset forex market interventions.

Central Bank credit to the state was 39.6 billion rupees in November. Credit to state enterprises also rose 18.1 billion rupees to 179.3 billion.

Sri Lanka had to generate more power from thermal energy, but costs are not passed to the economy, pushing up borrowings and worsening aggregate demand. There is also no price formula for fuel, with diesel in particular being under-priced.

Credit to state energy utilities, which are dependent on imports, immediately hit the