Small business lending rates continue downtrend as credit accelerates

• AWLR declines to 10.55% in Nov. from 10.82% in Oct.
• AWNLR falls to 8.71% in Nov. from 8.73% in Oct.

Lending rates to small and medium sized businesses (SMEs) continued to descend in November amid pickup in credit in the economy.

Sri Lanka’s private sector credit growth turned a corner in August, as economic growth recovered to 1.5 percent in the third quarter from a virus related contraction of 16.3 in the second quarter. 

The latest data available for loan rates for November showed that both the average weighted lending rate (AWLR) and the average weighted new lending rate (AWNLR)— the two benchmark rates to gauge the pace of decline in loan rates for small businesses and the general consumer—were continuing to decline. 

AWLR declined to 10.55 percent in November from 10.82 percent in October bringing the cumulative eleven-month decline in the benchmark rate to 3.04 percent. 

Meanwhile, the AWNLR, a closer matrix for loan rates in the most immediate period, fell to 8.71 percent from 8.73 percent in October. 

The November decline bought the first eleven-month decrease in the rate to a cumulative 4.09 percent. 

Mirroring the transformation taking place in the economy and its journey towards a more healthier lower interest rates regime, banks had increased their proportion of new lending at 10 percent or below from 23 percent at the end of 2019 to 87 percent in October 2020, recording more than four-fold increase in 10 months. 

Meanwhile, the average weighted prime lending rate (AWPLR) offered to banks’ prime customers for their short-term loans ended at 5.83 percent in the week ended December 24, slightly increasing from 5.70 percent a week ago. 

AWPLR touched an all-time low of 5.66 percent in the week ended December 11.

Fitch Ratings recently projected an acceleration in the pace of private sector credit by the banking sector in 2021.