New lending at or below 10%; increases fourfold in just 10 months

• New lending rate falls most in 2020 debunking claims that only rich benefit from low rates  

The proportion of new loans granted during the ten months to October at 10 percent or below has quadrupled indicating that more loans are being disbursed at lower rates than at any other time in history. 

According to the latest data available up to end-October, the proportion of loans at or below 10 percent surged to 87 percent by end-October, implying the efficacy of monetary transmission achieved in the 10-month period.

However, the Monetary Board of the Central Bank doesn’t appear to be content over the progress achieved. 

“…banks still charge interest rates over 20 percent from some customers,” the Central Bank said last week.

“The Monetary Board urges all financial institutions, led by licensed commercial banks (LCBs), to pass on the benefit of the low interest rate environment expeditiously to their borrowers, in respect of new as well as existing facilities,” it added.

The data on private sector credit for the three months to October showed the robustness of such credit continuing despite virus related issues. During the first 10 months, licensed commercial banks have granted Rs.258 billion in new credit to private borrowers. 

This includes the Rs.179 billion granted under the Saubagya COVID- 19 Renaissance Facility aimed at small businesses at 4.0 percent. 

A journalist raising a question with Central Bank Governor at last week’s presser held virtually asked if this amount was in United States dollar terms. 

By the end of 2019, the entirety of the Sri Lankan economy at current market price was US$ 84 billion. 

Meanwhile, in another notable development, the data showed that the Average Weighted New Lending Rate (AWNLR) or the rate that closely reflects the average of new loans granted to small businesses and individuals, has fallen the most by 407 basis pints or 4.07 percent in the two months to October to 8.73 percent. 

This is in comparison to 391 basis points or 3.91 percent fall recorded in the Average Weighted Prime Lending Rate (AWPLR) or the average of the rates offered to most prime customers of banks. 

The AWPLR was at 5.83 percent by the week ended on November 27.