Sri Lanka private credit shrinks in January 2014

Mar 24, 2014 (LBO) – Sri Lanka’s commercial bank credit to business contracted 42.1 billion rupees in January 2014 to 1,369.7 billion rupees from a month earlier, while central bank credit to the state rose, official data show. The central bank said the contraction in January came from a reduction in gold-backed loans and repayments of short-term private credit. Gold-backed loans surged in the bubble years, amid a global gold-price bubble fired by Federal Reserve money printing.

Analysts say ongoing regulator driven mergers in the financial sector may also be contributing to cautious credit.

State-owned enterprises in energy – whose losses funded by state banks were a primary trigger for the balance of payments crisis – also repaid some of the loans up to November.

Sri Lanka’s elected rulers have a consistent record of subsidizing energy with central and commercial bank credit and driving the country into balance of payments trouble.

In December 2013 there was a 57.1 billion rupee surge in credit to state enterprises raising concerns, amid a drought which reduced hydro power but in January 2014 SOE credit was stable, edging lower to 358.5 billion rupees from 356.1 billion in December.

But in January c