Bank loan interest rates soar

By Chathuri Dissanayake

Borrowers of housing loans will be paying more as interest from this month onwards. The interest rates of all loans including housing loans, personal and business loans have increased drastically over the past month.

Any individual who would be obtaining a housing loan from a commercial bank would be paying interest at a rate between 17 and 18 percent. Interest rates of all other loan schemes including business loans have also gone up drastically beyond 20 percent. According to industry sources, the current interest rates of all loans range between 18 and 22 percent.

Central Bank Deputy Governor W. A. Wijewardana confirmed that the interest rates of all consumer loans had gone up as a result of its attempts to control private sector borrowings.

According to the Central Bank, the growth in the private sector credit is 25 percent and this was more than the desired level “The banks have increased the interest rates of the loans to reduce the credit growth in the private sector. This is a requirement to reduce the inflation.

The Central Bank has requested from the banks to reduce private sector lending as this affects the inflation directly,” Mr. Wijewardana said.

Experts in the banking industry claim that there is excess cash in circulation which should have come to the banking system as savings. “We had to increase the interest rates of deposits to attract more funds to the system. In turn we have to increase our lending interest rates as the bank cannot bear the cost,” an official from one of the state banks said.

A private bank official said banks would experience a drop in borrowing as a result and so would investments in new projects. The new borrowers will have to pay more and they will have to transfer the extra cost to the end consumer. The ultimate result of this is that the end consumer would be paying more for their goods.