Though with a high loan growth forecast this year, Sri Lankan industry analysts expect the gross non performing loans (NPLs) to dwell around 6% on account of the improving debt servicing capacity of borrowers.
“Falling interest rates fixed to the rising demand for credit will see a strong loan growth this year," an analyst said.
He said that last year gold-backed lending and housing loans were seen giving a boost to the loan growth of many banks and this will be repeated this year.
“With interest rates at a low base, the borrowers will be able to service their loans this year (much better than last year,” a second analyst said. He added that whilst last year’s loan growth was mainly centred on pawn broking and margin trading this year it will be boosted by small and medium sector (such as construction, agriculture) and Corporate sector leisure, energy, construction, trade, etc.
Deshan Pushparajah, Manager Corporate Finance Capital Alliance noted that already the country’s banking sector has started lending aggressively. "The large firms will also be going in for large projects where the bottomlines of this sector will rise,” he said.
He added that personal loans such as pawning, housing and leasing will also increase.
Mr. Pushparajah said the proposed tax cuts such as the Financial Services VAT from 20% to 12% and the income tax from 35% to 28% are expected to boost industry lending and bring in higher profits.