Higher foreign borrowings and debt issuances slow private credit growth

6 January 2015 03:45 am

The foreign currency inflows to the corporate sector, of which the majority is borrowings, alone, have amounted to a staggering US $ 850 million (or Rs.111.35 billion). This is likely to have caused the extremely low banking sector credit growth despite the historically low key policy rates.Among the inflows were, John Keells Holdings PLC’s (JKH) seven-year syndicated loan of US $ 445 million, to partly finance its US $ 820 million Waterfront Project, of which US $ 100 million had already been obtained by December 1, 2014.In a similar syndication, National Development Bank PLC obtained a US $ 125 million financing package in November from the International Finance Corporation.


Meanwhile, though less than 2013, Sri Lankan corporates raised another Rs.30.1 billion issuing debentures during the first 11 months of 2014. Out of the total, nonfinancial corporates raised Rs.7 billion.As a result of the gradual de-regulation of the foreign exchange market by the Central Bank and thanks to the largely stable exchange rate, Sri Lankan companies were seen increasing their exposure t o dollar borrowings since 2012.


Corporate sector foreign borrowings were about US $ 400 million in 2012 and US $ 750 million in 2013.Sri Lanka’s private credit has been slow to pick up after hitting a more than six and a half year’s low of 0.8 in July. Credit to private businesses and personal customers grew by just 5.1 percent yearon-year in October 2014 to Rs.2,623.9 billion.


Due to larger corporates opting for relatively low-cost foreign borrowing to finance their projects, their appetite for bank credit appears to be tepid.
Central Bank Governor Ajith Nivard Cabraal in December said the current monetary stance is appropriate, given the economic growth and the inflation remaining benign, but he did not rule out a further cut in key rates by early part of this year.


But currency dealers think otherwise. They say the interest rates have now bottomed out and expect at least a 150 to 300 basis point increase in rates.
The Central Bank has been keeping its Standing Lending Facility Rate and Standing Deposit Facility Rate steady at 8.00 percent and 6.50 percent since January 2014.



Meanwhile, other inflows to the capital and financial account section of the external account show US $ 1.9 billion (estimate) of foreign direct investments and US $ 165 million worth of net portfolio flows to the Colombo Stock Exchange for 2014.Further, US $ 1.53 billion worth of project loans have been obtained by the government while the Central Bank issued two sovereign bonds totalling US $ 1.5 billion last year.Foreign borrowings by the banks were US $ 975 million.