Credit to private sector tops Rs. 200 b

Monday, 10 January 2011 00:11 - - {{hitsCtrl.values.hits}}

The country’s private sector borrowing has topped the Rs. 200 billion mark by end October, reflecting a healthy 18.3% growth year-to-date.

Whilst end September credit to private sector had grown by Rs. 167.1 billion. in October the Rs. 200 billion mark was surpassed to end at Rs. 218.6 billion as per latest data released by the Central Bank.

October also saw the biggest increase of Rs. 51.5 billion month-on-month as well as the highest percentage growth of 18.3% year to date.

With credit to private sector growing by Rs. 218.6 billion, the cumulative figure as at end October stood at Rs. 1.41 trillion, as against Rs. 1.19 trillion at the beginning of 2010.

In 2009, credit to private sector contracted by 5.7% or Rs. 71.5 billion to Rs. 1.19 trillion from Rs. 1.26 trillion in 2008.

However, in tandem with declining interest rates and confidence of the post-war rebound gathering momentum, the private sector has made a beeline to banks for borrowing since March 2010. In comparison to a growth of 3.3% in March, the end October growth of 18.3% reflects the growing momentum.

As per Central Bank sources, the average reduction in lending rates in 2010 was 2%. This, together with the reduction in risk premia and intermediation cost along with some directed measures, saw a pickup in private sector credit growth.

Late last year the Central Bank requested all banks to reduce interest rates, subject to the following maximum rates: 14% p.a. on housing loans and 24% p.a. on credit card advances

It is estimated that in tandem with strong economic growth in 2010, Gross Non Performing Ratio (NPL) has declined to 6.3% from 8.5% and Net NPL ratio declined to 2.8% from 4.2%

Central Bank Governor Nivard Cabraal during his presentation on the ‘Roadmap for 2011 and Beyond’ said that credit to the private sector was expected to grow by 16% this year.

The economy is estimated to have grown by 8% in 2010 whilst the forecast for 2011 is 8.5%. This higher growth is expected to further stimulate bank borrowing by the private sector.

A few more measures planned by the Central Bank will lend further demand. The bank plans to promote information and communication technology-based SMEs, facilitate service-oriented SMEs in the hospitality industry and conduct entrepreneurship development training programmes to fill the knowledge gap of existing and potential entrepreneurs in the regions.

The Central Bank also plans to introduce a new credit guarantee scheme to mitigate credit risk to participating financial institutions lending to SMEs as well as further strengthen existing poverty-focused credit lines.

Access to finance a basic need

The Central Bank is to promote the idea of “access to finance as a basic need” this year in a further measure to bolster the post-war rebound.

The bank is to conduct a fact-finding survey to address the knowledge gap of people on banking and financial matters as well as remedial measures.

It will also conduct a wide-ranging financial literacy programme in lagging provinces and hold 125 comprehensive financial literacy programmes in 2011.

The emphasis appears to be an overall focus to link low income people with the banking sector, with the target of 100% financial inclusion by 2015.