The Central Bank (CB) and the Treasury are strictly monitoring investment funds set up by commercial banks for long-term lending through savings from lower VAT and Corporate taxes in the 2011 budget, Finance Ministry sources said.
The CB has issued a directive to all banks to open Investment Fund Accounts, transferring all the money saved from the lowering of taxes, a senior official of the Ministry said, adding that this money should be provided for long-term loan facilities for the business community, especially the Small and Medium Enterprises (SMEs) at concessionary rates. "The new arrangement will considerably help develop the long-term finance market in Sri Lanka " he said. However he revealed that some of the commercial banks are yet to set up these funds or to start their long term lending process under this scheme.
In the 2011 budget, VAT on commercial banks' turnover was reduced from 20% to 12% and corporate tax on profit was reduced to 28% from 37%.
When asked to comment on this matter, Bank of Ceylon (BOC) Additional General Manager Dr. Sam Samarasinghe said that the BOC has already set up this fund and it has been fully utilized for funding of infrastructure projects in the country. They have made use of the money accumulated during the past four months, he disclosed.
DFCC has also fully utilized its Investment Fund providing financial assistance for a large number of SMEs. The bank has disbursed around Rs.100 million during the past three months through this fund, said Ananda Kumaradasa Senior Vice President of DFCC.
A senior official of the Sampath Bank said the lending process of their Investment Fund is now underway. Long term lending is beneficial for banks and they can get high returns on such investments. Banks have two options - either pay taxes to the Government or invest in Treasury bills or earn income via lending to economic activities of the private sector, he said. SMEs, working finance and rescheduling of loans will be made available to SMEs through the Sampath Bank investment fund, he revealed.
However a senior official of a leading private bank, who wished to be anonymous, told the Business Times that this measure will amount to the cost of deposits going up to a range between 0.1 % to 0.15 %. "The Central Bank has also requested banks to provide loans to fisheries and dairy sectors at the rate of 8 percent which would also hit banks' interest margins," he said. |
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