Bank credit to public sector contracted by Rs. 81.5bn in first eight months of 2016



by Sanath Nanayakkare


 


The declining trend in credit obtained by public corporations that was observed since November 2015 had continued during the first eight months of 2016 as well, a Central Bank publication states. In this backdrop, credit extended to public corporations by the banking system contracted by Rs. 81.5 billion during the first eight months of last year.


In the corresponding period of the previous year, credit obtained by public corporations had registered an increase of Rs. 36.5 billion while 2015 had recorded an overall increase of Rs. 76.9 billion


The Central Bank points out that the decline in credit to public corporations was mainly due to the repayments made by key public corporations including the Ceylon Petroleum Corporation (CPC) and the Ceylon Electricity Board (CEB). Reflecting the improved financial position, CPC settled around Rs. 97.5 billion of its outstanding debt with commercial banks. Meanwhile, CEB and Sri Lanka Ports Authority also settled around Rs. 8.4 billion and Rs. 1.7 billion, respectively of their outstanding liabilities to commercial banks by end August 2016. However, borrowings by SriLankan Airlines and the Ceylon Fertilizer Corporation increased by Rs. 5.6 billion and Rs. 4.0 billion, respectively, while the increase in credit extended to Colombo Commercial Fertilizer, Road Development Authority and Ceylon Shipping Corporation amounted to Rs. 9.0 billion during the first eight months of 2016.


Meanwhile, credit to the private sector had continued to flow at a higher rate in 2016, mainly reflecting aggressive borrowings in anticipation of future increases in interest rates due to monetary tightening as well as the positive impact of the increase in real incomes.


In addition to the low interest rates that prevailed particularly during the previous year, the significant expansion in credit to the private sector was also attributable to competitive marketing campaigns by commercial banks as well as market expectations of upward adjustments in the government tax structure. The year-on-year growth of credit to the private sector continued to accelerate during the first seven months of 2016, recording a growth of 28.5 per cent by end July 2016 compared to 25.1 per cent that was observed at end 2015. However, the growth in credit to the private sector indicated some moderation to record 27.3 per cent in August 2016. On average, credit to the private sector grew by 27.5 per cent during the first eight months of 2016 compared to 16.6 per cent recorded in the corresponding period of the previous year. In absolute terms, the expansion in credit to the private sector was Rs. 456.3 billion during the first eight months of 2016 compared to the increase of Rs. 310.5 billion in the corresponding period.


 
 
 
 
 
 
 
 
 
 
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