ECONOMYNEXT – Sri Lanka’s central bank has not banned state banks from lending to the Ceylon Petroleum Corporation, but asked them not to give excessive loans, Central Bank Governor Nivard Cabraal said.
He was responding to reports that state banks have been prohibited from lending to the severely indebted CPC, due to past policy errors and subsidies.
State banks have a large volume of public deposits and the central bank is charged with regulating them and safeguarding depositors.
The central bank has asked “state banks to adhere to the Single Borrower Limit that has been set for the CPC: not banned loans to CPC, as reported in some news,” Governor Cabraal said in a twitter.com message.
A single borrower limit is a threshold of loans set as a share of the capital of a bank. State agencies due to sovereign guarantees usually are allowed to borrow more than private creditors. However Sri Lanka’s sovereign rating is now downgraded to ‘CC’.
The CPC is severely indebted to state banks through dollar loans taken in years that the central bank prints money and creates forex shortages (runs inflationary policy with a peg).
Energy Ministry Secretary K D R Olga told Sri Lanka’s Hiru TV, that CPC owed state banks about 700 billion Sri Lanka rupees or 3.5 billion US dollars.
Energy Minister Udaya Gammanpila told reporters last week that the central bank has told it to generate rupees before coming to the central bank for dollars.
Cabraal has urged fuel to be market priced to stop the CPC running losses. (Colombo/Feb22/2022)