The long term impact of the interest rate cut in the state banks will be a positive one, despite some short term snags, according to stock analysts. “In the short run local private sector commercial banks will find it difficult to reduce their interest lending rates since the present cost of funds is relatively high in them.
As such the listed commercial banks will not be able to reduce lending rates overnight,” Charuka Suchendra, Research Analyst Asha Phillip Securities told the Sunday Times FT.
He noted that most of the state banks (especially NSB) will follow the lending rate cut since this bank owns excess liquidity compared to other banks.
“As a result of that there is a marginal risk that private sector banks may lose their customer base in the short run or if they reduce their lending rates without a time gap the profitability will be affected since the interest margins will become thin,” he noted.
He noted that this lending rate cut will have a slight negative impact on listed commercial banks in the short run but in the long run they can capitalize on this rate cut as more investors would demand for loans (since the rates are low).
Arjuna Dassanayake, Assistant Vice President Acuity Stockbrokers noted that interest rate cuts will be positive for the share market, as most banks financial institutions and high net worth individuals who have made large profits on bond trading will shift part of those funds to their stock portfolios on a more strategic investments on the longer term and another part on to shorter term active stock trading as well.
He noted that this move will have an effect as both new and existing investors will start to buy blue chips in the market.
“A depositor who was getting 18 to 20 % interest on his fixed deposit will realize that on maturity he is being offered a fraction of the earlier rate and it makes sense for such a depositor to shift his deposit in to the stock of the same bank and expect a capital gain in possibly an year or much earlier.” |
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