Financial Times

Finance Cos. expect better times after banks cut rates

Finance companies are gearing up for better times following the government's directive to state banks to reduce interest rates and plans by the Central Bank (CB) to introduce a deposit insurance scheme in the near future. Chairman of the Finance Houses Association Shirley Perera told the Sunday Times FT that the finance company sector is gradually coming back to normal.

"Things are improving and we are expecting further improvements because banks have reduced their interest rates drastically to around 8%," he said. "Senior citizens and depositors who depend on the interest income were badly affected. They may have to come back to the finance companies."

Based on the maximum rates laid out for finance companies by the CB. Mr. Perera said finance companies can only offer 17% or 18% on deposits. "If depositors come to us now and enter into a one year contract, that is the interest they will be getting." Mr. Perera also said the CB will be introducing a deposit insurance scheme which will boost morale. "The deposit insurance scheme is mandatory and will come into effect very soon."

Secretary General of the Bankers' Association Upali De Silva said the CB had requested private banks to reduce their interest rates as much as possible during a meeting with the CB Governor and representatives from banks a few weeks ago. "Most private banks have selectively reduced their interest rates for development loans and housing but reductions are not across the board," he said. "Even state banks have not done it across the board despite press reports."

Mr. De Silva said private banks have not reduced interest rates to levels directed to state owned banks but they have reduced rates by 3% or 4%. "Deposit rates have of course come down and must be brought down if the loan interest rates have gone down. A lot of banks are carrying five year deposits and those rates have to be reduced as well."

 
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