Banks oblige after CBSL warning
By The Sunday Morning Business Desk
Sri Lanka’s banking industry has largely fallen in line following the Central Bank of Sri Lanka’s (CBSL) recent lending rate caps with six banks even reaching the rates specified for December.
The CBSL ordered banks to reduce the weekly Average Weighted Prime Lending Rate (AWPR) by 150 basis points by 1 November and by at least 250 basis points by 27 December, compared to the AWPR as at 26 April 2019.
The Sunday Morning Business compared the AWPRs of 25 banks as at 1 November with that of 26 April and found that Citibank, Seylan Bank, Union Bank of Colombo, DFCC Bank, ICICI Bank, and Cargills Bank have already brought down their lending rates by over 250 basis points, which was the level the CBSL instructed banks to reach by the end of December.
Amongst these banks, Cargills Bank, Union Bank, and Seylan Bank have cut down their rates by over 300 points while even among them, Union Bank has brought down its rates by 523 basis points.
Meanwhile, 14 banks have complied with the rate cut which was required to be made by 1 November as they had brought down their lending rates by over 150 basis points.
These banks are Bank of Ceylon, Hatton National Bank, People’s Bank, Sampath Bank, Habib Bank, Commercial Bank of Ceylon, Indian Bank, Pan Asia Banking Corporation, Indian Overseas Bank, Nations Trust Bank, NDB Bank, State Bank of India, Amana Bank, and Axis Bank.
Amongst the 25 banks, four banks – HSBC, Standard Chartered Bank, Deutsche Bank, and MCB Bank – have reduced their respective lending rates, but the reduction is below 150 basis points.
Interestingly, Malaysia-based Public Bank’s lending rate had increased by 12 basis points as at 1 November compared to 26 April.
Banks with AWPRs at or below 9.5% are excluded from this compulsory rate cut. As at 26 April, none of the banks had their lending rates below this threshold, but after reductions of 125 and 214 basis points, respectively, from their April levels, HSBC and State Bank of India have qualified into this category as their current lending rates are 8.59% and 9.36%, respectively, which do not require further reduction.
The AWPR of domestic commercial banks was already at least 100 basis points lower at the end of September 2019 than in April 2019. The CBSL indicated that it expects to review this order at end-March 2020.
The CBSL’s decision to cut lending rates was taken to stimulate economic revival efforts, or risk being subjected to caps on lending rates. The reduction was mainly done to increase private sector credit growth. The year-on-year growth of credit disbursed to the private sector by licensed commercial banks grew slower than last year during the first seven months of 2019.