Market lending rates continue to descend as banks vie for more biz

• AWPLR fell by 7bps last week, bringing total decline to 71bps since last policy rate cut in July
• Has fallen by 234bps or 2.34% so far this year, in response to 250 bps cut in policy rates
• Probably first time in history that market lending rates have fallen in lockstep with key policy rates

The lending rates continued their descend through last week, amid the borrowing cost reaching historically low levels, as banks are seen adjusting their lending rates in response to the aggressive monetary policy actions aimed at accelerating the country’s economic recovery.

The average weighted prime lending rate (AWPLR)—the commonly used benchmark rate used to gauge the responsiveness in market lending rates—fell by a further seven basis points (bps) last week, bringing the total decline in the often used benchmark rate for pricing loans to 71 basis points, since the Monetary Board cut the key policy rates for the last time on July 9. 
The AWPLR has fallen by a significant 234 basis points (bps) or 2.34 percent so far this year, in response to the 250 bps cut in the key policy rates in five different times, from the beginning of this year, through July 9. 

This is perhaps the first time in the history that the market lending rates have fallen in lockstep with the key policy rates, providing evidence for the increased efficacy in monetary policy transmission, which was hardly seen in the past.

The Central Bank is daily monitoring the responsiveness of the market lending rates and has been pushing for faster transmission of the monetary policy actions, via an internal committee established, recently.

Meanwhile, a fortnight ago, Mirror Business showed that even the average weighted new lending rates and the average weighted lending rates had also begun their descend, albeit with some lag, after the Monetary Board and Central Bank expressed qualms about their stubbornness to respond to policy rate cuts and other moves to make credit widely available to support the businesses and the self-employed affected by the pandemic.  

The average weighted new lending rate (AWNLR) was down by 50 bps in June to 11.18 percent while the average weighted lending rate (AWLR) fell by 32 bps in the same month to 12.64 percent, before they responded to the July policy rate cut. 

In June, the decline in Sri Lanka’s private sector credit from the banking sector decelerated to Rs.54 billion, from Rs.70 billion in May, in a sign that banks have ramped up processing more loan applications and are competing with the peers to lure more borrowers as the Monetary Board decided to provide them with a credit guarantee scheme up to 80 percent of their loans, from July 1. 

Meanwhile, the banks themselves are offering mid to higher single-digit rate loans for businesses and special individual categories such as professionals, using their own funds, weighing down on the overall market lending rates.