28 August 2017 10:13 am
Sri Lanka’s banking sector’s exposure to property sector has been growing fast in the recent years and the Central Bank data shows that a majority of such loans were granted during the last three years.
According to the Central Bank data, banking sector exposure to the property sector has been growing at a higher year-on-year (YoY) rate than the growth in their total loan books since the beginning of 2013.
For instance the growth in construction loans reached a high of 34 percent in March 2016 before falling to slightly below 25 percent by the end of that year.
This was much higher than the growth recorded in the total loans during the same period, which ended the year with slightly under 20 percent growth, albeit recording the highest ever private sector credit granted in a single year.
In 2016, Sri Lanka’s banking sector granted Rs.755 billion in credit to the private sector.
It was only recently the Central Bank said that they may resort to certain macro-prudential restrictions such as loan-to-value ratios on sectors like property and real estate, which may be experiencing some overheating.
Despite the sharp increase in lending rates, Sri Lanka’s private credit growth reached over Rs.80 billion in June after slowing in April and May but the Monetary Board is of the view that the growth should decelerate in the coming months.
According to data from early 2010 to early 2017, over half of the total property sector loans granted during this period, which amounts to Rs.530 billion, has been granted during the last three years.
Out of this, over 60 percent has been granted as housing loans while the balance has been for the property development sector.
However, there has been a gradual acceleration in loans towards the property development since 2014 stoking fears over a possible bubble in the property market.
This could be attributed to the mushrooming of apartments in Colombo and the suburbs, which gathered momentum after the conclusion of the war.
However, some of the luxury apartment complexes are built on foreign investments without being a burden to the local banking system. Even some of the local developers recently said a large part of their constructions is equity funded and supported by pre-sales.