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NSB to reduce its lending rate by Two percent – Treasury official
State banks follow BoC’s lead, private banks’ reaction mixed

The Director General for Fiscal Policy of the Ministry of Finance and Planning, S. R. Attygalle, said following Bank of Ceylon’s decision to bring down its lending rates by Two percentage points, other state-owned banks would soon make downward revisions on their lending rates as well.

"State-owned Bank of Ceylon took the lead in reducing its lending rates and this is good sign of things to come. The National Savings Bank will also revise its rates downward by Two percent while People’s Bank too may reduce their rates," Attygalle told members of the Ceylon Chamber of Commerce last morning.

He was certain of National Savings Bank’s revision but not People’s Bank, but he said they would in all probability follow.

"This would mean that private commercial banks may also soon follow suit but the government cannot press them to do so," he said.

Several dealers of private commercial banks told the Island Financial Review earlier in the week that their banks planed to reduce rates by about One percent from next week.

"With inflation and call rates down, commercial banks will have some room to reduce their lending rates but commitments on fixed deposits is a constraint so it may take some time before commercial banks make a significant reduction," a dealer said adding that it could take up to three months for many of the banks to respond.

Another dealer said that some banks may not want the competition caused by a reduction in lending rates of the state-owned banking sector.

"Some banks will want to pay attention to quality than on quantity so they may not cut lending rates. But then clients could easily exert pressure when negotiating rates. At the same time others would want to respond faster to the information that state-banks would cut rates," he said.

However, dealers said high-net worth individuals and corporate clients are already enjoying rate concessions not available to the rest.

Exchange rate…

Attygalle was present at the chamber to hear grievances held by the private sector with regard to the government’s export stimulus package (which will be highlighted in next Monday’s edition)

While Attygalle ensured the private sector that the Treasury would do all it can to iron-out the problems he said the stimulus package was not a hand out but a payment to allow exporters some breathing space amidst the global economic crisis.

"We understand your problems but the Treasury cannot afford to give handouts, our revenues are also suffering. You will have to bear with the hard times and make things work. The stimulus package will only help to give you some breathing space," he told the members of the chamber.

"We do not need a stimulus package if the exchange rate is realistic, gas and diesel are given to us at world prices and electricity prices are reasonable," a member quipped as if to console the Director General of Treasury, to the laughter of all present.

Dealers said the rupee was dealing at around Rs. 115 and Rs. 116.10 against the dollar lat afternoon.

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