Seven banks fail to comply with CB order to bring down prime lending rates

The financial sector regulator, the Central Bank (CB), will initiate ‘appropriate measures’ against seven banks, which have failed to comply with the regulator’s order to bring down the Average Weighted Prime Lending Rate (AWPR) by 250 basis points, by the end of last week. 

“It is observed that People’s Bank, Commercial Bank of Ceylon PLC, Indian Overseas Bank, MCB Bank Ltd, Public Bank Berhad, Standard Chartered Bank, Amana Bank PLC and Axis Bank Ltd, have failed to comply with the Monetary Law Act Order No. 02 of 2019,” the CB revealed in a statement yesterday. As per the CB’s orders, every licensed commercial bank (LCB) is to reduce its weekly AWPR by at least 250 basis points by December 27, 2019, compared to the AWPR at April 26, 2019, excluding the banks which had an AWPR of 9.50 percent or below. 
During the period, People’s Bank was only able to reduce its lending rate by 234 basis points to 10.15 percent and Commercial Bank was able to reduce it by 221 basis points, although the bank’s AWPR came down to single digits of 9.87 percent.

Malaysia-based Public Bank Berhad has only reduced its AWPR by a mere 87 basis points, by falling short of record 163 basis points to meet the CB’s order. 

The CB noted that some LCBs have reduced their AWPR sharply during the week ending December 27, 2019, from the previous week ending December 20, 2019, to meet this regulatory requirement.

Last week, the CB warned Sampath Bank, DFCC Bank and Cargills Bank might also fail to meet the regulator’s orders before the deadline.

However, Sampath Bank has reduced its AWPR sharply by 96 basis points to 10.44 percent over last week to avert the regulatory actions from the CB. Similarly, DFCC Bank and Cargills Bank have also reduced their AWPR by 65 basis points and 215 basis points to 11.25 percent and to 12.42 percent over last week, respectively. 

Interestingly, Standard Chartered Bank has increased its AWPR by 26 basis points to 9.79 percent over last week.

The CB stressed that it intends to take the appropriate measures in relation to the banks that have failed to reduce their AWPR by 250 basis points, as well as those licensed banks that have not met with the other provisions of the order. 

The Monetary Board of the CB is expected to decide on the appropriate measures against errant banks, shortly. However, the CB doesn’t have provisions in the Banking Act to impose monetary penalties on banks. 

Since end-April, Hatton National Bank, Commercial Bank, Nations Trust Bank PLC, Citibank, Deutsche Bank, Standard Chartered Bank and State Bank of India have brought down their AWPR to single digits while HSBC maintained its single digit AWPR. 

Meanwhile, Seylan Bank PLC and Union Bank of Colombo were able to drastically reduce their AWPR by 378 basis points and 596 basis points since end-April. Although Cargills Bank has reduced its AWPR by 386 basis points by the end of last week, it still had the second highest AWPR among the LCBs. 

“As per the order, any LCB shall not increase its AWPR, from the reduced level and it is expected that the market lending rates, particularly those linked to AWPR, will continue to decline in the period ahead, with regular repricing,” the CB stressed. 

Axix Bank and ICICI Bank to close down Lankan operations 

Two Indian banks, Axis Bank Limited and ICICI Bank Limited, are to close down their business operations in Sri Lanka.

The Central Bank has permitted the termination of business activities of the two banks at the request of their parent banks, subject to certain conditions.

Accordingly, the two banks are currently not permitted to carry on banking business, including accepting depositions from the public.

The licences issued to them will be cancelled once the winding-up operations are completed.