Prime lending rate logs steepest weekly fall; market expects further cut in policy rates this week

• AWPR falls 40bps to 7% recording steepest weekly decline in recent times
• Year-to-date fall in AWPR is 274 bps, higher than 250bps cut in policy rates 

The average weighted prime lending rate (AWPR) fell by 40 basis points (bps) last week, logging the steepest weekly decline in recent times while the market weighs in on another round of monetary policy easing this week as the Monetary Board of the Central Bank meets to asses the country’s monetary policy for the sixth time.

AWPR, which is a commonly used benchmark rate to price loans provided for banks’ prime and larger customers, is now at 7.00 percent, down from 7.40 percent a week ago. 

Last week’s fall in the AWPR brings the cumulative fall in the benchmark lending rate to 111 bps or 1.11 percent since the Monetary Board cut its key policy rates last time by 100 basis points on July 09. 

The year-to-date fall in AWPR is now 274 bps or 2.74 percent, higher than the 250 bps in key policy rates so far this year, making the response of the market lending rate 
higher than the cut in key policy rate for the first time. 

Cargills Bank and Pan Asia Bank, which had their prime lending rates stubbornly above 11.00 percent for many weeks have now shown some flexibility with the former’s AWPR falling below 10 percent for the first time. 

It appears that the Central Bank’s internal committee, which monitors the daily transmission of monetary policy via market lending rates, has been effective in its task as a clear downward adjustment in market rates can be seen.

However, different banks operate with varied cost of funds and it may take some banks longer than others to alter their rates. 

Meanwhile, banks appear to be competing with each other to record growth in their loan books after a dormant three months between April and June. They increasingly look for growth as they have been hit by both interest concessions provided as part of the moratoria on a large portion of their customers and higher credit costs for possible loan defaults, which might occur in the future. 

The growth in new loans could somewhat mitigate this impact as they can earn higher interest income. 

Besides being intermediaries to loan the funds allocated under Central Bank’s refinance scheme assigned for affected businesses, the banks are using their own funds to provide fresh facilities for those who could not become part of the refinance scheme, at single-digit interest rate, bringing overall interest rates lower.