Banks cut deposit rates in response to Central Bank’s directive

Sri Lanka’s banks have reduced the deposit interest rates after the Central Bank asked the licensed banks and non-banking financial institutions to lower the interest rates on deposits and lending products, to increase credit into the economy to revive the sluggish growth. 

Sampath Bank has cut the interest rate on 12-month fixed deposits to 10.50 percent, from 12 percent, while Commercial Bank also reduced the interest rate on similar term deposits by 50 basis points to 10.50 percent.

Hatton National Bank is yet to tweak its interest rates on deposits and National Development Bank said it would be reducing the interest rates on deposits shortly.   
The state banks, Bank of Ceylon, People’s Bank and National Savings Bank, are also yet to announce the changes to interest rates.

The Central Bank last week asked the banks to cut the interest rates on deposits to reduce the cost of funds for banks so that they could lend at lower rates.
However, so far, none of the banks have lowered their lending rates.

The Central Bank expects the lending rates to come down at least by 200 basis points.  

“The reduction in SRR by 250 basis points in two steps in November 2018 and March 2019 has already reduced the cost of funds and is expected to result in a narrower margin between the deposit and lending rates,” the Central Bank said.  

Sri Lanka’s growth slowed to 3.2 percent in 2018, from 3.4 percent in 2017. The Central Bank expects the growth to pick up to 4 
percent this year. 

However, last week’s terrorist attacks on three city hotels in Colombo have delivered a deadly blow to the country’s booming tourism industry and the Finance Ministry estimates the arrivals to fall 30 percent and the country to lose US $ 1.5 billion in tourism earnings. 

Sri Lanka’s private credit grew just Rs.8 billion in February after contracting Rs.4.3 billion in January.

The banking sector credit quality faltered notably in 2018 with the slowdown in economic activities and the adoption of new accounting standards in the latter part of the year.