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Bank credit eases in May 2012

10 July 2012 04:24 am - 0     - {{hitsCtrl.values.hits}}

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LBO: Credit to the state from Sri Lanka's banking system eased in May 2012 and loans to business were back at levels seen before the Central Bank began to sterilize foreign exchange sales last year, official data show. Credit to private sector rose Rs.36.1 billion in May 2012 to Rs.2,215 billion, up 33.5 percent from a year earlier. Annual growth eased from 34 percent to 33.5 percent.

Credit to state enterprises grew Rs.9.4 billion to Rs.266.6 billion in May, up 107.7 percent from a year earlier.

Credit to the central government fell Rs.3.7 billion to Rs.1,024.8 billion, driven by a reduction in Central Bank credit (printed money) to the state by Rs.22.2 billion to Rs.329.5 billion. Up to April budgets were seen to deteriorate. The total state credit in May however, was at a nine-month low.

In April, tens of billions of rupees were printed to pay double salaries to state workers as state revenues fell amid a slowing economy and a trade contraction, but most of it was repaid in May.

But in April, actual cash demand by the economy also goes up due a traditional festival. The government however had borrowed Rs.18.5 billion from commercial banks in May, including a Rs.2.9 billion increase in dollar borrowings which could be due to currency depreciation.

Credit to government rose 44.7 percent to Rs.1,024.8 billion by May 2012, from a year earlier, while credit to state enterprises rose 107.7 percent. Central Bank credit to government (printed money) rocketed 243 percent Rs.329 billion in May from a year earlier.

The Central Bank used printed money to sterilize foreign exchange sales in the course of defending a peg with the US dollar from around August 2011 as state loans taken to manipulate oil prices put pressure on the balance of payments.

The sterilized foreign exchange sales lit a fuse under Sri Lanka's banking system driving monthly private sector credit volumes from 20 to 40 billion rupee levels to 50 to 60 billion rupee levels, boosted by Central Bank credit.

Total credit from the banking system to state and private sector players peaked at Rs.140 billion in January and remained above 100 million US dollar until March 2012.

Credit was also boosted by a Rs.10 billion Central Bank profit transfer and a Rs.17 billion provisional advance in January.

Central Bank credit injections to the banking system began to ease after the rupee was partially floated in February resulting a gradual slowing down of total credit to more normal levels which match the deposits generated by the banking system.
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