China excited about SL; Seeking deals with local banks – Mahendran
Chinese banks are more than keen to work with their local Sri Lankan counterparts, Central Bank (CB) Governor Arjuna Mahendran, after a recent 2-day visit to China, said. ”China is excited about us. They are awaiting the Port City (construction). They want to refinance our banks and invest in agricultural based projects etc. They also want to carry out agricultural lending,” he told the Business Times on Thursday, on the sidelines of a media briefing on the state of the economy.
Top officials of some six banks – Bank of Ceylon, Peoples’ Bank, Commercial Bank, HNB and Seylan had accompanied Mr. Mahendran on this delegation and held one-to-one high-level discussions last week. Mr. Mahendran said that he had met with Governor of Peoples’ Bank of China, which is the central bank of the People’s Republic of China. “He said our local banks can borrow in renminbi (the legal tender in mainland China) markets as much as we want.” He added that Prime Minister Ranil Wickremesinghe is due to visit China in April.
CB officials said that the team met with China Development Bank, Asian Infrastructure and Investment Bank, Agricultural Bank of China and China Communications Bank among others. Some local banks told the Business Times that they have set up some meetings this week with some of these Chinese banks. Meanwhile discussing the state of the economy Mr. Mahendran told the media that a future rate hike later in the year is possible in addition to the one done recently by the CB by 50 basis points.
“We will do our best to keep it at this point but it will be largely decided by international events. I will not rule it out.” According to Central Bank regulations, anything above 15 per cent is considered excessive, he said. “It’s a sign of confidence that banks are willing to lend, and people are willing to take loans with high rates, but we are worried about defaulting loans. We had to resort to this unfortunate interest rate hike last week. The basic issue is that the growth in bank lending is running at about 25 per cent.”
He added that if Middle Eastern wealth funds continue to liquidate their investments to buttress Government spending strained by thinning oil prices and rates are hiked again by the US Federal Reserve, Sri Lanka will follow suit. “First it was anticipation of a US rate hike. Now it’s Middle Eastern sovereign funds liquidating positions to cover low oil revenues. If this selling continues for many more months to come, then we will have to consider further rate hikes ahead.” He added that the CB is trying to reduce foreign outflows to prevent the rupee going into freefall and for the foreign exchange situation to become acute. “Interest rates have only been restored to levels seen in early 2015 so we do not expect a slowdown in growth.”
On seeking International Monetary Fund (IMF) lending, he said that CB won’t go with a begging bowl in hand to the IMF. “We are trying to get IMF to agree with our policies.” He added that an IMF programme would encourage rating agencies to rate Sri Lanka favourably. A final hurdle regarding the use of the Paypal online payments system has been cleared paving the way for this payments vehicle to be used in Sri Lanka, he added. He said that issues pertaining to the reversal of funds remitted out on Paypal (for example when refunds are made) were cleared. PayPal is a US-based global online payments system established in 1998 which is available in 203 countries, including Sri Lanka, and in 26 currencies.