Huge lending by state banks worries Central Bank

The Central Bank is concerned with high private sector credit growth in commercial banks specially the two state owned banks which have continued lending in an insensitive manner despite higher rates and tight liquidity, Central Bank Governor Dr. Dr. Indrajit Coomaraswamy told a media conference on Wednesday.
He noted the private banks have shown some deceleration in granting credit, but the state banks, the Bank of Ceylon and the Peoples Bank have remained less sensitive as there have been large disbursements from the state sector banks despite the higher rates and tight liquidity.

The Governor also said, at the briefing to discuss the country's monetary policy, that the Monetary Board has decided to curb operations of controversial Perpetual Treasuries Limited along with the launch of two internal inquiries regarding the alleged bond sale issue.

On the credit issue, the Central Bank said it was closely monitoring the situation as the two state banks have given credit heavily to the construction sector and related fields exerting an impact on the tightening of the monetary policy.
In October 2016, private sector credit growth decelerated to 22 per cent on a year-on-year basis but on an absolute basis it has increased. The IMF and the Central Bank want to bring down this growth to less than 20 per cent levels but economists doubt if the monetary authority could meet its target
Dr. Coomaraswamy said that he will have to discuss this matter with state bank heads to arrive at a consensus on private sector credit.  Sri Lanka is gradually replacing the current monetary targeting framework with flexible inflation targeting framework to achieve price stability he said adding that private sector credit is impacting rate changes as well. (Bandula)