The Sri Lanka Bankers Association (SLBA) this week launched a ‘credit counselling’ service to help people and companies in debt, which it says is needed because credit card and retail debt default, is on the rise.
“We have noticed an increase in non performing loans in the credit card sector and the retail sector. So these are the areas we hope to address with the counselling service, because large corporates often have their own financial advisors,” said the Secretary General of the SLBA, Upali de Silva, speaking at the launch of the counselling centre on Wednesday.
According to Central Bank data, unpaid credit card debts came to Rs 2.5 billion by December 31, 2008, out of a total of Rs 34 billion worth of credit card lending.
Credit cards have become commonplace currency in Colombo city and are also spreading into rural areas. But Central Bank officials say the increase in default rates is not because banking procedures have been relaxed to allow easier access to credit cards The higher default rates are attributed to the rapid increase in the cost of living in the country. People are increasingly using credit cards to bridge their income shortfall, but when cost of living continues to increase, at some point, people are forced into default.
Unpaid retail sector loans are much higher than credit card defaults. For instance, the unpaid loans in the housing sector are worth Rs 13.9 billion and non performing loans in the leasing sector is about Rs 4.4 billion. Unpaid loans in the pawning sector is the lowest, at about Rs 0.2 billion, although pawning is still the most popular way to raise credit in the country.
The SLBA says its Upadeshana services are aimed at helping people and companies work out solutions to their debt problems. The counselling centre has already hired experienced retired bankers as counsellors.
In addition to people in debt, the centre will also offer services for people looking to access credit. This is expected to encourage people to use the formal banking system instead of approaching informal, more unstable channels for credit.
“We will also help people who find it difficult to access credit. Many people in Sri Lanka do not know how to approach a bank to obtain a loan,” said Mr de Silva.
At this point the counselling service does not have a hotline and people are asked to submit their queries in writing. The address is Upadeshana, the Centre for Banking Studies, No 58, Sri Jayawardenapura Mawatha, Rajagiriya.
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