ECONOMYNEXT – Sri Lankan banks are now more comfortable funding construction projects which were seen as high risk earlier, a senior banker said.
The end of the island’s ethnic war triggered a construction boom which led to bigger ticket projects, said Sanath Manatunge, Deputy General Manager-Corporate Banking of Commercial Bank.
The construction sector was not favoured by banks 5-10 years back and was in the high risk category, he told a forum held by brokerage Asia Securities to present the findings of their report ‘Sri Lanka Construction Sector: Transitioning from Infrastructure to Residential’.
“With the end of the war and changes in socio-economic conditions the dynamics changed,” said Manatunge.
Interest rates fell from 18 percent to around 10 percent today, making housing loans more affordable to consumers, and construction firms got larger infrastructure projects like roads and water.
“Project funding requirements also grew – from millions to billions,” he said. “The entire mindset changed across the industry – from banks to construction companies and sub-contractors to suppliers.”
Bankers are now “attuned to handle larger projects,” Manatunge said, adding that low interest rates favour growth in housing loans which had now become a “star product” in the whole loan portfolio with bigger loan values.
Manatunge said he does not anticipate an oversupply of apartments if the government keeps macro-economic factors stable with low inflation and interest rates.
“Demand for housing is driven by macro-economic conditions and lifestyles.” (Colombo/November 08 2015)