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Sri Lanka private credit shrinks for second month
Mon May 05, 2014 7:34 am
May 05, 2014 (LBO) - Sri Lanka's credit from commercial banks fell 0.9 billion rupees to 2490.7 billion rupees in February 2014 from a month earlier, the second month that private credit has fallen in absolute terms.
In January the outstanding private credit stock fell 42.7 billion rupees, the first month credit has shrunk in the wake of the latest balance of payments crisis.
Following the 2008/2009 balance of payments crisis, private credit fell for eight months in a row.
Analysts says following a balance of payments crisis, which is triggered by a credit bubble, de-leveraging is a natural as risky loans taken during the bubble period is purged and firms try to strengthen their balance sheets by reducing debt.
It is part of a standard credit or business cycle that allows both borrowers and lenders to emerge stronger following a burst bubble.
As interest rates fall following a balance of payments crisis, many firms also try to pay off high interest rates loans and refinance at a lower rates before taking new loans.
Central Bank officials have said that a reduction is gold-backed loans was a key reason for slower lending to the private sector after precious metal prices fell sharply in 2013. There were also foreign borrowings by larger private firms.
Meanwhile some firms have also been floating tax free debt in the stock exchange. It is not clear whether the ongoing banking consolidation process is also contributing to the trend with management attention focused on the process.
Credit to government also fell 25.1 billion rupees to 1,344.6 billion rupees with loans from domestic banks falling t 989.2 billion rupees from 1,020 billion a month earlier.
In January the state sold a billion US dollar bond and has paid back some Treasury overdrafts.
Weak credit growth following balance of payments troubles allows a central bank to withdraw rupee liquidity and build up foreign reserves and also strengthen the exchange.
http://www.lankabusinessonline.com/news/sri-lanka-private-credit-shrinks-for-second-month/1667159038
In January the outstanding private credit stock fell 42.7 billion rupees, the first month credit has shrunk in the wake of the latest balance of payments crisis.
Following the 2008/2009 balance of payments crisis, private credit fell for eight months in a row.
Analysts says following a balance of payments crisis, which is triggered by a credit bubble, de-leveraging is a natural as risky loans taken during the bubble period is purged and firms try to strengthen their balance sheets by reducing debt.
It is part of a standard credit or business cycle that allows both borrowers and lenders to emerge stronger following a burst bubble.
As interest rates fall following a balance of payments crisis, many firms also try to pay off high interest rates loans and refinance at a lower rates before taking new loans.
Central Bank officials have said that a reduction is gold-backed loans was a key reason for slower lending to the private sector after precious metal prices fell sharply in 2013. There were also foreign borrowings by larger private firms.
Meanwhile some firms have also been floating tax free debt in the stock exchange. It is not clear whether the ongoing banking consolidation process is also contributing to the trend with management attention focused on the process.
Credit to government also fell 25.1 billion rupees to 1,344.6 billion rupees with loans from domestic banks falling t 989.2 billion rupees from 1,020 billion a month earlier.
In January the state sold a billion US dollar bond and has paid back some Treasury overdrafts.
Weak credit growth following balance of payments troubles allows a central bank to withdraw rupee liquidity and build up foreign reserves and also strengthen the exchange.
http://www.lankabusinessonline.com/news/sri-lanka-private-credit-shrinks-for-second-month/1667159038
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