Sri Lanka credit surge in October 2014 led by state
EconomyNext – Sri Lanka commercial bank credit surged in October 2014 with heavy borrowing by state enterprises for the second month, official data showed, as the exchange rate came under pressure.
Credit to private business rose 42 billion rupees to 2,623 billion rupees, with borrowings from foreign currency units also rising 6.1 billion rupees.
Private borrowings had picked up from August amid record low interest rates rising 47.7 billion rupees. In September 52.3 billion rupees were loaned to private borrowers followed by 42 billion rupees in October.
State enterprises borrowed 40.2 billion rupees from banks in October, the highest since December 2013, when they borrowed 57.1 billion rupees.
The October borrowings were on top of 26 billion rupees borrowed in September, a sharp reversal from a steady paying down of loans seen during the year.
The central government also borrowed 12.7 billion rupees, down from 26.5 billion rupees in September.
The borrowings indicate a steady deterioration in state finances over the past two months.
In October total loans from the banking sector to state and private borrowers were 94 billion rupees on top of 104.8 billion rupees in September, indicating that banks were loaning more than the deposits they were getting.
Excess liquidity temporarily sterilized by the Central Bank is now being loaned out, leading to foreign exchange pressure and losses in forex reserves.
By December 12 excess liquidity in the banking system rose to 371.94 billion rupees in the second week of September has since fallen to about 350 billion rupees.
Sri Lanka’s gross official forex reserve fell to 8.8 billion rupees by end September from 9.2 billion rupees in August.
The rupee fell from 130.20/22 to the US dollars in the spot market at the end of August to 131.96/132.00 levels last week.
In December however the exchange rate usually comes under upward pressure with year-end remittances and exporter conversions to pay bonuses to staff.