• By end August lending rates expected to drop to 16 - 17%
• Says have to be careful when bringing down rates drastically

By Shabiya Ali Ahlam 

Sri Lanka is likely to see a drop in the prime lending rate in the coming months, a move that will help businesses to gain access to capital, Sri Lanka Banks’ Association (SLBA) said.

According to SLBA Chairman and Standard Chartered Bank Sri Lanka CEO Bingumal Thewarathanthri, lending rates are expected to drop to the levels of 16 to 17 percent by this August, and by the end of the year to 11 to 12 percent.

“Otherwise it will be very difficult to steer through the economy. It has to come down to that level,” Thewarathanthri told  a panel discussion organised by CA Sri Lanka in Colombo, yesterday.

Earlier this month, the Central Bank slashed policy interest rates by 200 basis points due to a steady deceleration in inflation. In June, it cut the rates by 250 basis points. Accordingly, the Standing Deposit Facility Rate now stands at 11 percent and the Standing Lending Facility Rate at 12 percent.

Thewarathanthri noted that the initial reaction to the policy rate reduction was the leasing rates coming down to 17 to 18 percent. 

Over the last 12-18 months, banks moved away from lending amid soaring interest rates in the economy. This led to a lack of capital in the private sector, and SMEs had only a few borrowing options.

The problem, he pointed out is, Sri Lanka has half a billion dollars in government securities investments. 

“We have not seen a big outflow after the DDO. Some expected a larger part to move out. 

They will slowly move out. But we might attract different funds,” said Thewarathanthri.

“We have to be very careful when we bring down the rate drastically. We have to strike a balance. We have done enough for now but we expect further rate cuts before the end of the year. The whole world will cut rates and we will have to follow the trend,” he added.