Central Bank ceiling rate on finance company FDs revised up

The Central Bank has sharply raised the upper limit of interest rates that could be offered by non-bank lenders on deposits, Mirror Business learns. The increase in ceiling deposit rates at non-bank finance companies comes as part of the twice a year revision set by the Supervision of Non-Bank Financial Institutions Department of the Central Bank.

With the latest revision, a non-bank finance company can offer up to 14.22 percent per annum on a 12-month term deposit, effective from January 1, significantly up from the hitherto available 12.46 percent.  In addition, the non-bank lenders can offer up to further 1.0 percent for senior citizens. 

The ceiling rate is linked to the primary auction’s weighted average yield rate (WAYR) of one-year treasury bill, an earlier directive issued by the Central Bank said. 

According to a 2017 directive issued by the Central Bank, the Supervision of Non-Bank Financial Institutions Department would publish the WAYR of one-year treasury bill twice a year – in June and December – which is applicable for the ensuing six months.

The 364-day treasury bill rate has risen by over 200 basis points during the year to January 4, 2019, as it slightly eased at the first primary auction held, last week. 

With the new ceiling rates, the gap between the deposit rates between banks and non-banks have now widened from last month.

For instance, People’s Leasing & Finance PLC, the second largest non-bank lender by assets, has raised its 12-month fixed deposit rate to 14 percent, while L B Finance PLC has raised its rate to 13.75 percent per annum.  Both finance companies, at maturity offer 14.75 percent for 
senior citizens. 

Meanwhile, among the licensed banks—which offer best rates for 12-month FDs—Seylan Bank PLC and DFCC Bank PLC offer 12.5 percent at maturity.

According to analysts, the deposit rates in the banking sector will either stabilize or ease during 2019, as the sector operates with adequate liquidity and the pressure for lending has also eased form last year, amid the rising non-performing loans. 

The Central Bank last week offered an ultimatum for the banks and non-banks to either raise their capital levels or be ready to face the consequences, signalling that the era of regulatory forbearance has come to an end. 

Sri Lanka has way too many banks and non-bank lenders making effective regulatory oversight difficult.