Banking sector grants record loans in 2018

• Loan record Rs.1.3tn; 19.6% growth compared to 2017
• Banks  granted Rs.400bn worth loans in 4Q18 alone
• Total non-performing loans for 2018 at Rs.102bn
• Banking sector poised for muted earnings season

Sri Lanka’s banks have granted a record amount of loans and their growth also picked up pace during 2018 despite higher interest rates and non-performing loans—though the latter’s rise showed some respite. 

The banks have granted a record Rs.1.3 trillion worth loans in 2018, recording a growth of 19.6 percent from 2017, data seen by Mirror Business showed. This is an increase from the 16 percent growth recorded for 2017. 

Sri Lanka’s banking sector loan growth moderated after two years of rapid credit growth in 2015 and 2016, where 21 percent and 18 percent rates were 
recorded respectively.        

The growth in bank loans in 2018 was above expectations  and in contrast with the overall performance of the country’s economy.

During the fourth quarter alone, the banking sector granted Rs.400 billion worth loans.

While large banks granted the highest amount of loans, medium-sized banks –ones with assets between Rs.200 billion and Rs.500 billion – recorded the highest growth of 21.5 percent compared to 2017. 

Small banks with assets less than Rs.200 billion recorded the lowest growth of 10.9 percent, becoming the casualty in between the larger and medium-sized rivals. 
Small banks lack  scale and they are unable to match the rates offered by their bigger rivals, which leads to loss of market share. The Central Bank has encouraged mergers between small banks by way of higher capital thresholds. In January, Central Bank Governor Dr. Indrajit Coomaraswamy said the banks and finance companies that fail to meet the minimum capital levels can expect no mercy from the regulator. 

Meanwhile, the non-performing loans – the biggest issue facing Sri Lankan banks at the moment –showed some respite during the final four months of 2018. 
The reported gross non-performing loans of the banking sector dropped to 3.4 percent in December from the 3.6 percent in September. 

Although the non-performing loans have shown some deceleration, the sector is not still out of the woods. 

The ratio is still higher than 2.5 percent reported for 2017. 

Standard & Poor’s in their latest banking industry country risk assessment said they expect further rise in the banking system’s non-performing loans. 

Meanwhile, the total non-performing loans for 2018 stood at Rs.102 billion.

Given the challenges, Sri Lanka’s banking sector is poised for a muted earnings season as they begin to report their December earnings from the third week of this month.