President Mahinda Rajapaksa asked the Central Bank to inquire why commercial banks continued to make profits while small and medium enterprises struggle to stay in business.

"High interest rates are a big problem for the SME sector. Why can not banks which continue to make huge profits, use some of it to provide relief to the SME sector?" the President asked when the Central Bank issued its Annual Report for 2008 yesterday.

"This is something I urge the Central Bank to look into and regulate. There should be more regulation on the part of Central Bank with regard to this problem," he said.

Rajapaksa said when the government initiated its agriculture policy about three years ago provisions were made in the budget for banks to provide capital to the agriculture sector, which should amount to 10 percent of each bank’s loan portfolio.

"It is time for the Central Bank to look in to this and find out just how cooperative they have been in promoting the development of the agriculture sector," he said.

This is not a new problem, said the President and he echoed the concerns of the SME sector, and even of bigger companies, that commercial banks have always charged high rates of interest.

State-owned banks, Bank of Ceylon and National Savings Bank, have slashed their lending rates by two percent while People’s Bank has reduced its lending rates by three percent.

Last week there was mixed sentiments from private commercial banks to the rate cuts of its public sector counterparts but economists say lending rates would eventually come down as long term deposits held with private banks are renewed at lower rates.

A dealer noted, however, that certain high net worth clients tend to receive credit on lower rates than the rest.

"Basically, the rest are left untouched," he said.

Despite the turmoil in the global economy, Sri Lanka’s economy grew by 6 percent in 2008.

The Governor of the Central Bank, Ajith Nivard Cabraal said the Central Bank has made two GDP growth forecasts for 2009.

"There is an optimistic estimate; GDP growth ranging from 4.5 percent to 5 percent. There is also a pessimistic forecast which is between 2.5 percent and 3.5 percent. We are confident with proper implementation of government policy and with productivity improvements, Sri Lanka could achieve the upper forecast," he said.

"However, the world economy is expected to revive by 2010 and if we are to seize the opportunities that would be presented, productivity improvements will have to be done now," Cabraal said.

The President said Sri Lanka’s economy was well managed and the proof for it is the gains made in the fight against terror.

"The war effort required strong leadership and an economy that would provide timely financial support to the military thrust. Our people have suffered long enough but they have hope that terrorism would soon be wiped out," Rajapaksa said.

"We have defeated terrorism and this is proof that our economy is well managed. The complete victory over terrorism is the first victory against the next battle, which is to boost the economy," he said.

Rajapaksa said with the war soon over, it would give administrators more room to focus on implementing policies that have been designed to boost the domestic industry.

"It will require hard work and commitment but I am confident we can achieve a higher GDP growth rate in 2009," he said.

"Even with the war effort, we have maintained a 6 percent GDP growth rate, our per-capita income has doubled over the past four years to more than US$ 2,000, inflation is down to single digits and investments for infrastructure projects are continuing to be made," Rajapaksa noted.