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Banks show signs of risk-averse as they become wary of rates

9 February 2021 09:31 am - 0     - {{hitsCtrl.values.hits}}

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  • Show reluctance towards lending to new borrowers 
  • Say prevailing rates too low for them to make money
  • Possible uptick in interest rates expected towards 2Q

The local banks have begun to show some reluctance towards lending to new borrowers, as they grow wary of the interest rates, which they deem too low for them to make money, while a case is building up for a possible uptick in rates in the near future. 


Particularly, the small business borrowers complain that the banks have become antagonistic and too sceptical about them and are sent from pillar to post, citing various reasons when they come for new loans.


Meanwhile, the banks are seen showing higher preference to their existing clientele, who are already known to them, clearly for lower credit risk.


“The funny thing is, when I approached one loan officer in one of the commercial banks for a loan for a business venture, which I am about to start, he said I have to put up 80 percent as equity and the bank would put up 20 percent as a loan,” said Madura Pelmadulla, a small business owner, who seeks to venture into a new business. 


“Who on earth comes to the bank if he has 80 percent equity?” he quipped.


“When I told them that I am willing to give a personal property of mine, which is six times the value of the loan that I am seeking, this officer still didn’t budge and he slammed on me not to waste anymore of his time. 


I thought to myself how foolish a bank in this country could be to shut on a potential borrower, who is willing to put himself on the line for a business venture, which he is willing to show more than enough collateral and revenue stream enough to service the loan,” Pelmadulla said. 


He said he was under the false impression that both the Central Bank and government want to encourage loans to small businessmen like him, who take tremendous personal risk to do some value addition, which creates jobs and has the potential to bring important foreign exchange revenues into the country. 

Pelmadulla said this was not the only bad experience he had during the last few weeks, when trying to apply for a loan. 


At another private bank, which he tried his luck, he was sent pillar to post for various documents and was asked for various fees, citing legal requirements, even before he was told whether the bank could provide the facility. 


“The moment they saw the person, the first thing they ask is to open an account with the bank and then to pay this fee and that fee, even before I am told whether the bank is in a position to provide the loan based on my business proposal, collateral and repayment capacity,” he said in dismay. 


According to the latest data, the licensed commercial banks showed some acceleration in private sector credit in December, from the deceleration seen in October and November. 


However, a banker in a small-sized commercial bank on condition of anonymity said they do not push for loans that much, although the Central Bank comes behind them, because it gives very little reason for them to lend at the prevailing rates. 


First Capital Research last week forecasted interest rates to start rising towards the second quarter of the year and there is potential for two rate hikes by the Monetary Board in the third and fourth quarters, respectively. 

 

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