Banks delay passing interest rate benefits to customers

One bank was found not cutting their personal loan rates since February this year despite slashing deposit rates next to nothing

Sri Lanka’s licensed commercial banks were found to be delaying the passing down the benefit of the easing financial conditions to its borrowers via lower lending rates.

Some of the top tier commercial banks were found keeping some of the loan rates as high as 15 to 16 percent, and also unconscionably fixed for five years, depriving the benefit of lowering rates in the economy to its borrowers.

Furthermore, according to one lending officer of one of these banks said they hadn’t changed their personal loan rate since February this year.

Asked why they are obstinately holding rates at these exponentially high levels while they have reduced their deposit rates are down to just 7 to 8 percent, he said they had not received instructions from their head office.

These banks have only been dealing excessively with their most prime customers to whom they offer loans tied to the benchmark prime rate, of which the rate has come down to 9.00 percent levels.

Last week, the weekly average prime lending rate lost 13 basis points to 9.15 percent, falling by 11.11 percent from a year ago.

They appear to be hiding behind the prime lending rate which has been coming down by keeping the rest of the loan rates at higher levels.

At 16 percent for a personal loan, at 7 percent for a one-year term deposit, they are maintaining a mammoth interest margin of 9 percent, before accounting for statutory reserve assets, mandatory liquid assets and other administrative costs.

A complaint would soon be lodged at the Financial Consumer Relations Department forthwith at the Central Bank against this top tier banks for this preposterously bad act and the client vowed to take these officers in a Colombo city based branch into task for trying to rip him off.

The Monetary Policy Board has repeatedly been asking the banks to swiftly pass through the full benefits of the eased monetary policy conditions to the borrowers by way of cutting lending rates.

It appears that the less impressive growth in private sector credit is due to the banks not adequately cutting lending rates.

When the Central Bank started cutting policy rates in June last year, the banks were quick to slash their deposit rates but held off long before they cut their lending rates.

It took repeated warnings and Monetary Policy order to bring the rates down to set target levels by the Central Bank by the end of last year.

It appears that the Central Bank will have to be tougher again to bring lending rates down to reflect the eased monetary policy, and to drive credit to the real economy to help 
support growth.