Sri Lanka private loans positive in November, credit to state expands

ECONOMYNEXT – Sri Lanka’s commercial banks loans to private customers grew by 41.4 billion rupees in November 2020, slower than the 59 billion rupees in October while credit to the central government was more than double at 99.1 billion rupees, official data show.

Sri Lanka private credit has grown 298.3 billion rupees so up to November 2020.

It includes a 120 billion rupees surge in March during a so-called ‘flexible exchange rate’ episode where the central bank allowed a peg with the US dollar to break after printing money panicking importers to early covering during a global uncertainty.

Credit to government from the banking system, including central bank credit has expanded by 1,593 billion rupees, compared to 298.2 billion rupees of private credit.

Credit to government grew 99.1 billion rupees in November, slowing from a 281 billion rupee surge in October, which was mostly due to a foreign reserve appropriation via central bank credit to repay a billion US dollar maturing sovereign bond.

A steady expansion in credit, financed by central bank liquidity, tends to pressure the currency.

Central Bank credit to government (printed money) expanded by 64.3 billion rupees, the fourth highest monthly expansion seen in 2020. In March the central bank printed 164 billion rupees, a part of which was to cover a surge in cash drawdowns from the system.

CB credit including reserve appropriations had been 467 billion rupees, up to the end of November.
Sri Lanka

A large proportion of the Treasury bills held by the public in 2019 had been bought by the central bank turning them into bank notes which are exchangeable for dollars in a bid to keep down interest rates, triggering forex shortages, foreign currency weakness and foreign reserve losses.

The falling currency and falling reserves, had also triggered downgrades. (Colombo/Jan04/2020)

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