Credit Trend

May 28, 2014 (LBO) – Sri Lanka’s banks are lending money to industry and services, but the total loan stock is not growing fast because of contracting gold loans, Deputy Central Bank Governor Ananda Silva said. The Central Bank gave a partial credit guarantee to banks to lend against gold, which is expected to boost loan values to about 80 percent of collateral from around 65 percent.

Bank became shy of gold loans after prices fell from 1800 US dollars an ounce to around 1300 dollars an ounce as Fed loose monetary policy reduced somewhat, bursting a precious metal price bubble.

Gold bears expect the metal to fall to about 1000 US dollars an ounce over the next 12 months if Fed tapering continues and speculators cut their holdings.

Silva said banks had invested heavily in Treasuries, pushing their rates down, as credit to private sector was curtailed.

Rates to prime customers who had more bargaining power had fallen.

Silva said rates charged from smaller non-prime customers were higher, and long term rates were still high.

He said instead of preserving high margins, banks should perhaps look at boosting volumes from smaller customers.

From a peak in 2012, gold loans have slump