Sri Lanka bank credit volumes fall to 18-month low in July

Sept 24, 2012 (LBO) – Loans from Sri Lanka’s commercial banks to state and private borrowers fell to 10.1 billion rupees in July 2012, down from 13.5 billion rupees a month earlier, the lowest since January 2011, partly helped by a sovereign bond sale. Loans to private borrowers rose 35.7 billion rupees to 2,270.6 billion rupees in July up 31.6 percent from a year earlier, data released by the Central Banks showed.

The monetary authority its policy statement for September said private credit volumes were enough to keep the economy ticking.

The credit volumes to the private sector are about half the volumes seen in the first quarter of year, and back to levels before the Central Bank started to print money to sterilize foreign exchange sales, driving Sri Lanka into a balance of payments crisis.

The rupee injections drove credit (and imports) to unsustainable levels, leading to a two billion US dollar loss of foreign reserves and rupee fell to 134 from 110 to the US dollar over the past year.

The initial trigger for the crisis was large volume of unproductive credit taken by state energy enterprises to manipulate energy prices. In Februa