Central Bank to announce timeline for banks to reduce market lending rates

Aug 23, 2019 (LBO) – Sri Lanka’s Central Bank with the expectation of reducing all market lending rates in line with the reduction already observed in deposit interest rates, will announce specific timelines and measures shortly in consultation with relevant stakeholders.

The Central Bank said that it will monitor the developments in market lending rates and recommend the imposition of appropriate caps on market lending rates of financial institutions if the intended reduction is not realised within specified timelines.

All market lending rates, including the Average Weighted Prime Lending Rate (AWPR), are yet to show a downward adjustment commensurate to the decline observed in deposit interest rates.

Central Bank said it is essential that market lending rates are lowered by bank and non-bank financial institutions in response to their reduced cost of funds, thereby boosting credit flows to productive sectors, and in turn help the revival of the economy.

The year-on-year growth of credit disbursed to the private sector by licensed commercial banks continued to decelerate during the first seven months of 2019.

Accordingly, the absolute increase in private sector credit remained far below the levels observed in the corresponding period of 2018, the Central Bank said.

As per the Quarterly Survey on Loans and Advances to the private sector by licensed commercial banks, the year-on-year growth of credit towards agriculture, industry and services have been decelerated further in the second quarter of 2019, while the growth of personal loans and advances accelerated.

The deceleration in credit extended to the private sector has caused a slowdown in the growth of overall monetary aggregates during the period as well.