Enhance lending activities, CB tells commercial banks

(March 24, Colombo, Sri Lanka Guardian) The Central Bank has called on commercial banks to enhance lending activities immediately so that the credit flow to the private sector is ensured and economic activities in the country are supported.

Credit given by the banking sector to the private sector has declined sharply and such a situation is not desirable for growth and inflation, according to a press release of the Central Bank.

Early last year, credit to the private sector from the banking sector grew by 18 per cent and then fell to 8 per cent by the end of the year. This ratio fell further to 6 per cent by the end of January this year. This trend is despite the Central Bank relaxing its monetary policy stance several months ago.

The Central Bank said that it reduced the penal rate of interest imposed on reverse repurchase transactions by commercial banks which was reduced from 19 per cent to 14.75 per cent.

In addition, the Central Bank reduced the repurchase and reverse repurchase rates to 10.25 per cent and 11.75 per cent respectively.

However, lending by banks to the private sector declined to 6.4 per cent in January this year from 8 per cent in December 2008.

In a press release, the Central Bank stated that the declining trend in lending is due to an insufficient decrease of lending rates by commercial banks.

It had requested commercial banks to enhance lending activities immediately so that the credit flow to the private sector is ensured and economic activities in the country are supported.

-Sri Lanka Guardian