The Bank of Ceylon (BOC) has reduced its lending rates by one percent, General Manager Rohini Nanayakkara said.
Responding to the recent downward trend in interest rate structures, the bank dropped its lending rates band on new advances from 19-24 percent to 18-23 percent.
The first quarter of 1996 has shown a definite decline in interest rates. Weighted average yield rates published by the Central Bank indicate that three month treasury bills which yielded 17.46% on February 16th, steadily declined to 15.62% on February 23rd, 13.38% on March 1st and 11.98% on March 8th. On January 26th the weighted average yield on three month bills was 18.39%. Treasury bill auction were not held in the next two weeks, following the Central Bank bomb blast. One year bill yields also dropped correspondingly from 18.39% on January 26th to 17.83% on February 16th, 15.37% on February 23rd, 14.62% on March 1st, to 14.40% on March 8th.
"It is difficult for banks to review interest rate trends on a monthly basis and adjust lending and deposit rates accordingly. But we reviewed the declining trend in interest rates in the first quarter of this year and decided to reduce lending rates," Mrs. Nanayakara told The Sunday Times Business.
The bank reduced its benchmarked one year deposit rates from 15 percent to 14 percent two weeks ago, with the onset of the decline in treasury bill yields.
The bank's seven day call money rates were also dropped from 10 to 9 percent at the same time.
"Now we will mobilise funds at a lower cost and we decided to pass on this benefit to our borrowers," Ms. Nanayakkara said.
It is expected that other commercial banks will be compelled to fall in line with the state's premier lending institution's decision to drop lending rates.
"Our interest rates are always market driver, and related to several factors that determine interest rates like treasury bills yields, balance of payment and budget deficits etc," Ms. Nanayakkara explained.
She said state banks were often criticised for artificially inflating interest rates. Media in general and specialised publication and reports have been unduly harsh on the state banks and their financial performance, she said.
"This may be due to the fact that, in the early 90s when it was discovered that the state banks were under-capitalised, the government undertook a major exercise to recapitalise the state banks to meet the international capital adequacy standards as well as other banking standards and norms.
"The state banks now operate on a level playing field with other commercial banks, without any special privileges or benefits as state owned banks, Ms. Nanayakkara said adding that in a competitive environment, we cannot artificially keep interest rates high," she added.
Lending rates will now begin at 18 percent to priority sectors and go up to 23 percent for high risk, non essential commercial lending. Priority sector lending which includes agriculture industry, tourism, is nearly 50 percent of the bank's total lending portfolio.
The bank has maintained a 20 percent growth rate in the past three years in advances, deposits and profits, Ms. Nanayakkara said.
She said the country had high liquidity now from several privatisation deals like Shell Company and Orient Company. In another venture to be privatised shortly, bidders have already deposited their money in local banks, she said.
Private remittances from expatriate workers of which the BOC has over a 50 percent market share have also increased.
In the past three weeks foreign investor interest has revived with foreign transaction consistently overtaking local transaction. Recent relaxation of regulation permitting banks to borrow in dollars and convert to rupees has also increased liquidity in the money market.
The bank's review of the interest rate structure predicts the downward trend continuing in the next couple of weeks. BoC sets interest rates on downward path
All of a sudden the grim reality of the looming power crisis has hit home. And everybody has been called on to help avert the disaster. The government is providing a duty rebate on generators that are imported prior to March 31. The two major development banks, NDB and DFCC, are providing concessionary financing to investors for the purchase of generators. The Ceylon Electricity Board (CEB), the centre of the drama, has launched a well publicised incentive scheme to encourage consumers to reduce their electricity consumption below their October-December 1995 average.
The CEB has also reportedly agreed to a proposal put forward by several trade chambers to reimburse Rs. 6.15 for every unit of electricity generated on private generators.
For someone who is completely unaware of the history of this situation, it may seem like this power crisis sneaked up on us while we weren't looking and took us all by surprise. But don't be fooled by this sudden flurry of activity. And don't be taken in by policy statements like "the government is taking immediate steps to overcome the emerging power crisis" and the task force will expedite the implementation of several power projects which have been delayed for the last several years."
This power shortage had been predicted by experts for several years. In fact, it was expected in 1994 and was fortunately averted because of above average rainfall. On numerous occasions over the past few years, the CEB, planners, scientists, business leaders, and other experts have brought this situation to the attention of our political leaders and requested the development of a rational plan to manage demand and to increase supply of power before disaster strikes. The warnings and requests seem to have fallen on deaf ears.
The mature thing to do in situations like this, however, is not to point fingers but to learn valuable lessons' According to Dr. Tilak Siyambalapitiya, who has warned about this power crisis for many years, the shortage for 1996 will be 200-300 million units. This means that if the government waits until the very last minute to impose power cuts, we will be without electricity for more than half the day. This would completely destroy exporters most of whom operate on very small margins. Most exporters, especially the smaller ones, will not be able to bear the cost of buying and operating a generator for such long periods.
For this reason, private sector groups like the Federation of Chambers of Commerce and Industry in Sri Lanka (FCCISL) are urging the government to impose immediate power cuts for 1-2 hours every day. Patrick Amarasinghe, Chairman of the FCCISL, has very sensibly pointed out that these short-term power cuts will be much easier to adjust to than the 16-17 hour power cuts that are envisaged in April. They will also serve to reduce consumption now and to cushion, if only very slightly, the eventual impact of long power cuts. For some time now, the CEB Engineers Union has been urging the Minister of Irrigation, Power and Energy to impose immediate short-term power cuts to no avail.
It is very important that the government takes this request very seriously and make a responsible decision. We all know that there is no getting out of this crisis. The immediate situation will not be ameliorated by pledges to invest in more power projects or to appoint new task forces.
In short, there is nothing that can be done on the supply side to avert this crisis. Only demand side management can help. This means not only pleasant things like incentive schemes but also unpleasant things like immediate power cuts.
We should not knowingly let things deteriorate to an almost irreparable extent and wait until the last moment to respond. The next crisis in the making seems to be the public transport system. Fares have not been raised for the past 5 years and the entire system is in chaos. This should ring some warning bells for decision makers. Planners and administrators are doing the right thing by identifying the problems and developing various responses. It is now up to the decision makers to act on this information with the nation's welfare in mind (not just the next election). Furthermore, the electorate is mature and intelligent enough to appreciate a good decision.
