Sri Lanka's central bank has placed a cap on excessively high overdue loan charges demanded by financial institutions to reduce borrowing costs, the island nation's monetary authority said on Friday, a move analysts suggest to boost credit growth. The central bank has asked commercial banks to reduce overdue loan charges on all loans and advances above the original lending rates to a level not exceeding 2 percent with effect from August 1, the bank said in a statement.
The central bank also asked financial institutions to reduce interest on leasing to 3 percent. The central bank said, according to a survey it carried out, financial institutions have been charging between 2 percent and 20 percent on loans and 36-48 percent on leasing.
"Such excessive interest rates are not consistent with the present low interest rate regime prevailing in the country," the bank said in a statement. The central bank has reduced the key monetary policy rates by 75 basis points since December and commercial banks' statutory reserve ratio by 200 basis points last month. Sri Lanka's repurchase rate and the reverse repurchase rate are at 7 percent and 9 percent, respectively. However, commercial banks' lending rates, are still more than 14 percent, bankers say. "This move is to boost the credit at difficult times," an analyst from a domestic bank said on condition of anonymity. "Private sector credit growth is not really picking up as expected."
Comments
Comments are closed.