Sri Lanka’s Sampath Bank expects to top 20-pct loan growth in 2016

ECONOMYNEXT – Sri Lanka’s Sampath Bank Plc expects to top 20 percent loan growth with debt sales and foreign loans supplementing deposits in 2016 and demand for loans remained strong despite higher rates, a top official said.

"We have enough and more (credit) proposals coming our way," Chief Executive Aravinda Perera said a ceremony at Sri Lanka’s Colombo Stock Exchange Friday.

"The problem is deposit growth is slow and slack. We probably have to think about debentures and borrowings from overseas to match."

Sampath Bank’s customer loans which 14 percent to 343 billion rupees in the first three quarters, suddenly saw loans surging to 375 billion rupees in the December quarter. The bank cut 31 billion rupees in reverse repo deals during the year.

Deposits also grew from 339 billion rupees to 406 billion rupees.

Many Sri Lankan banks dipped up cash temporarily tied up term reverse repo deals with the central bank or cash deposited in its liquidity window during slow credit up to 2015, to give loans in 2015 and credit picked up and the budget deficit also expanded.

The ‘excess liquidity’ was the liabilities side of foreign reserves collected by the central bank.

The central bank then repaid Treasury bills held by the public and bank with printed money, injecting nominal or synthetic paper rupee reserves into the banking system pushing credit growth beyond the deposits raised by banks, generating monetary instability.

This is why loan-to-deposit ratios of banks deteriorate during currency crises.

Sri Lanka has lost reserves and the in now in a currency crisis as a result. Banks and primary dealers are now borrowing heavily from the central bank’s discount window to buy bond and given yet more credit.

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However many banks have raised interest rates and are also mobilizing deposits. When deposits are mobilized, consumption is curbed and loans given with real deposits do not de-stabilize the currency through excess imports.

Meanwhile Perera said the bank was managing its interest rate risk by re-pricing loans higher ahead of deposits.

Dollar borrowings are on-loaned as dollar loans to cut exchange risk, he said.

Most of its loan are on variable rate, Perera said. About 40 percent of the loans based on the prime lending rate and other on London Interbank Offered Rate, he said.

"All other rates except leasing are variable," he said. "We stand to gain as the rates go up. We re-price our loans and when deposits mature we have to increase the rates. But there is a time gap."

Perera said about a year ago, there was only a small gap between savings and fixed deposits rates. But now the gap was widening and more customers were shifting to fixed deposits.

Sri Lanka’s one year fixed deposit rates have moved from around 6  to 7 percent at the beginning of 2015 to around 9 to 10 percent now.

Sri Lanka’s money markets are tight with central bank defending a peg. Seasoned monetary analysts say rates will continue to have upward pressure until the rupee is successfully floated. (Colombo/Apr04/2016)
 

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