July 03, 2014 (LBO) – Sri Lanka’s bank credit is estimated to grow 14 percent in 2014 and outlook for the sector is ‘stable’ with bad loans to also stabilize this year, Moody’s, a rating agency said. “¦[A] pipeline of infrastructure projects is expected to boost economic growth, together with an accommodative monetary policy,” Srikanth Vadlamani, Vice President and Senior Analyst at Moody’s said in a statement.
“In such an environment, loan growth will rebound and asset quality will stabilize.
“Our stable outlook for the Sri Lankan banking system is also consistent with our stable outlook on the Sri Lankan government’s B1 rating.”
According to official data Sri Lanka’s economy is growing at 7 percent, one of Asia’s fastest rates.
Sri Lanka is recovering from a balance of payments crisis triggered energy subsidies financed with bank loans which were ultimately accommodated by central bank credit (printed money) in the course of sterilizing foreign exchange sales.
The corrective action led to a sharp rise in interest rates, a depreciation of the exchange rate and energy price hikes. The weakened exchange rate also helped kill domestic spending power.
Bad loans in banks