Sri Lanka commercial bank loan volumes ease; CB credit negative in July

ECONOMYNEXT – Sri Lanka’s bank credit to private and state fell to 32 billion rupees in July 2017 from 64 billion rupees a month earlier, with central bank credit the banking system (printed money) negative for the third straight month, official data show.

Central Bank credit to the banking system is the central driver of excess credit and economic instability in Sri Lanka’s soft-pegged monetary arrangement, which leads to forex shortages and encourages capital flight.

Central bank credit to government contracted 71 billion rupees in July, as the monetary authority sold down its Treasury bill stock to mop up liquidity coming from dollar purchases.

In June it sold down 3.8 billion rupees and in May 62 billion rupees.

In the first seven months of the year, central bank credit had contracted 116.5 billion rupees, compared to 226 billion rupees in money printed in 2016.

Credit to private sector was 50.5 billion rupees in July, down from 83.3 billion in June. Up to July private borrowers had taken 351 billion rupees in net loans above repayments, compared to 411 billion last year.

Credit to government, after deducting central bank credit was 282.5 billion rupees, barely up from 272.5 billion rupees a year earlier.

Credit to government from commercial banks can show an uptick as Sri Lanka comes off from a balance of payments crisis, as Treasury bills, previously held by the central bank is bought by banks. However each such purchase tends to contract base money rather than expand it.

Credit to state enterprises also fell 37 billion rupees in July, for reasons that were not immediately apparent. In the first six month of the year SOE credit rose amid higher oil prices and thermal generation of power. (Colombo/Oct02/2017)





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