ISSN: 1391 - 0531
Sunday March 30, 2008
Vol. 42 - No 44
Financial Times  

High NPLs a concern among banks

Despite the Central Bank’s plans to reduce inflation to around 10 to 12 percent by December thereby decreasing the interest rates, bankers say they will record high Non Performing Loan (NPL) rates if this situation is not rectified by June this year.

“Our NPL rates will rise due to the high interest rates and the high interest rates are difficult to curtail in the current economic environment,” Nimal Perera, PABC Deputy Chairman told The Sunday Times FT. He explained that businesses borrowing at 25 percent will need to add other operational costs and keep at least a 50 percent margin to their selling price to make a profit. “No business can have that type of margins in the competitive environment we have today. Also, the borrowers may not repay their loans due to the credit crunch they are experiencing because of high interest rates, which in turn will increase our NPL ratios,” Perera pointed out.

Zulficar Zavahir, CEO NTB noted that high interest rates, coupled with high cost of living have caused NPL rates to increase. “The re-payments to the banks by borrowers will come after they meet their cost of living. So the borrowings of individual customer segment will see high NPLs,” he said.

He explained that businesses have to bear high cost of funds, whereby repayments to the banks will be a burden. “It is a vicious cycle. Things need to be brought under control by the second quarter – by June at least, because we will have a NPL problem if not,” he added. Upali de Silva, Secretary General, Sri Lanka Bankers Association said the industry has witnessed a marginal increase in NPLs. “But it is not substantial, compared to what we had three to four years ago,” he said. He said the Central Bank is gearing to reduce the interest rates by December, after which the situation should improve.

 

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