Sri Lanka’s Commercial Bank expects 10-12 pct credit growth in 2020

CENTURY: Commercial Bank and CSE officials at a bell ringing ceremony to mark the bank’s centenary year.

ECONOMYNEXT- Commercial Bank of Ceylon Plc, Sri Lanka largest private lender by assets, is expecting its loan book to grow by 10-12 percent in 2020 amid a pickup in economic activity, from a 3 percent growth a year earlier, an official said.

“This year, we are aiming for a loan growth of double digits, around 10 to 12 percent,” Managing Director Sivakrishnarajah Renganathan told EconomyNext.

“Even if we achieve 10 percent credit growth, that’s great, because last year it was 3 percent,” he said.

He was speaking on the sideline of a Colombo Stock Exchange bell ringing ceremony to celebrate the bank’s 100-year anniversary.

Multi-national

He said overseas operations in Myanmmar, Bangladesh and Maldives will help the bank reach its credit growth target.

The central bank is projecting private credit in Sri Lanka to grow 12-13 percent in 2020, after cutting policy rates in January.

Sri Lanka’s private credit growth slowed to 4.45 percent in 2019 from 15.44 percent a year earlier, in the wake of monetary instability in 2018 followed by terror attacks in 2019 which hit domestic demand.

Banks also became more conservative as bad loans in the industry spiked after the rupee collapsed in 2018, on top of an earlier collapse in 2015/2016.

Looking for Growth

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Renganathan said the bank will explore a diverse range of sectors to expand its loan book in 2020.

A large portion of Commercial Bank’s credit is in the manufacturing and trading sectors.

However, it is still too early in the year to ascertain which sectors credit growth will come from, Renganathan said.

For the economic cycle to lift, a period of stability is required, and many would look to the post-election policies, he said.

Sri Lanka’s growth had been 5 or below since 2013.

“There was a small lull, but things are slowly getting back into track,” Renganathan said.

“But after the elections, there will only be half a year, so things won’t change dramatically.”

He said there could be a 6-12 month lag between the elections and a substantial pickup in activity.

Consumption loans, which are showing a gradual growth after the government stimulus package, may not pick up until after elections, as consumers are awaiting further policy certainty on new taxes and policies, he said.

Construction

Projects in construction, one of the government’s thrust sectors for growth with large tax cuts, will be evaluated for its risks on a case-by-case basis, he said.

Commercial Bank has a lower exposure to construction, especially apartments, compared to its peers, which had helped in lower bad loan provisioning in 2018.

Renganathan said the bank is comfortable with one developer, but has set limits on advances to that customer as well, to manage risks.

The bank has not taken a conscious decision to limit its exposure to construction, but business in the sector had been naturally limited as many developers had not shown strong repayment capabilities, he said.

“Some condo projects we didn’t want to fund, because they didn’t have the capacity to repay. Some of them crashed.”

Even housing loans for apartment buyers were extended after advising them of the risks and evaluating the ability of developers to fulfill the project according to regulations.

However, in the immediate future, the bank does not see much opportunity in the sector as developers have yet to start new projects until the market absorbs the oversupply of apartments, Renganathan said. (Colombo/Feb26/2020)

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