SOEs borrow Rs. 184 b in pandemic pinch: CB

Tuesday, 4 May 2021 00:40 -     - {{hitsCtrl.values.hits}}

The Road Development Authority (RDA) increased its bank borrowings by Rs. 53.6 billion in 2020 


  • Annual Report says high borrowings reflect weak fiscal position of most SOEs 
  • RDA borrowing increased by Rs. 53.6 b
  • SriLankan, Water Board, SPC and CEB among major borrowers 
  • Private sector credit grows 6.5% to Rs. 374 b but credit to agri, industry and services low 
  • Personal loans grew 15.1%, pawning 17.9%, but credit cards shrink 2.5% Y-o-Y 
  • Construction loans grow 12.6%, credit to services expand only by 1.4%
  • CB reiterates credit towards productive sectors inadequate

Stronger credit demand by State-owned Enterprises (SOEs) saw lending to the State sector rise by Rs. 184.2 billion in 2020, the Central Bank said in its latest Annual Report, but private sector loans also performed better than expected increasing 6.5% to Rs. 374.1 billion.    

Credit extended to State-owned Business Enterprises (SOBEs) by the banking system recorded a notable expansion during 2020, reflecting the weak financial position of most SOBEs, aggravated by the pandemic, the report said.  

Accordingly, credit obtained by SOBEs from the banking system increased by Rs. 184.2 billion during 2020. Although bank borrowing by the Ceylon Petroleum Corporation (CPC) in foreign currency increased by around Rs. 74 billion, CPC maintained a large rupee deposit balance with the banking system in 2020. Meanwhile, bank borrowing by the Road Development Authority (RDA) increased by Rs. 53.6 billion during 2020. 

In addition, credit obtained by SriLankan Airlines, National Water Supply & Drainage Board (NWS&DB), State Pharmaceuticals Corporation (SPC), Paddy Marketing Board (PMB) and Ceylon Electricity Board (CEB) increased notably during 2020, while Sri Lanka Ports Authority (SLPA) made repayments to LCBs during the year, the report added. 

Credit extended to the private sector increased by Rs. 374.1 billion during the year, recording a growth of 6.5%, year-on-year, by end 2020.

“The expansion of credit to the private sector in the second half of 2020 was mainly driven by Personal Loans and Advances, while direct credit to activities in the Agriculture, Industry and Services sectors of the economy remained low during the year.”  

According to the Quarterly Survey of Commercial Banks’ Loans and Advances to the Private Sector, growth of credit in the form of Personal Loans and Advances accelerated notably to 15.1%, year-on-year, by end 2020. Within Personal Loans and Advances, the Consumer Durables subsector recorded a notable growth of 38.4%, year-on-year, by end 2020. 

Meanwhile, credit granted under Pawning Advances grew by 17.9%, year-on-year by end 2020, reflecting the increased appetite for such credit with the reduction in maximum interest rates and increased gold prices. However, Credit Card advances contracted by 2.5% year-on-year by end 2020, in comparison to the growth of 22.9% at end 2019. Meanwhile, credit to the Agriculture and Fishing sector recorded a moderate growth of 3.9% year-on-year by end 2020. 

Within this sector, credit flows to the Tea, Paddy, Rubber, and Coconut subsectors recorded expansions in 2020, while credit granted to the Vegetable and Fruit Cultivation and Minor Food Crops, and Fisheries subsectors recorded contractions by end 2020, compared to end 2019. 

Meanwhile, growth of credit to the Industry sector accelerated to 4.7% year-on-year by end 2020, from 3.1% at end 2019. The construction sector, which was affected significantly by the pandemic-related lockdown during the early part of 2020, recorded a notable recovery supported by low interest rates. Accordingly, within the Industry sector, credit to the Construction subsector, which accounted for around 53% of the total credit flows to the Industry sector, recorded a notable growth of 12.6% year-on-year by end 2020.

The growth of credit extended to the Services sector decelerated to 1.4% year-on-year by end 2020, compared to the growth of 3.1% at end 2019. Contributing to the slowdown in credit to the Services sector, growth of credit to the Financial and Business Services subsector contracted by 5.5% year-on-year by end 2020, compared to the contraction of 6.5% at end 2019, amidst policy measures implemented to curtail the importation of personal motor vehicles during the year. Further, credit flows to Wholesale and Retail Trade, and Shipping, Aviation and Freight Forwarding subsectors, also contracted by end 2020, compared to end 2019. 

Nevertheless, amidst the debt moratorium granted to tourism-related industries and other measures, including special concessional loan schemes to support the pandemic-affected businesses, credit to the Tourism subsector expanded by end 2020, the report added. 

Overall, the increase in Personal Loans and Advances contributed around 58% to the expansion of credit extended to the private sector during 2020, while the increase in credit to the Industry, Services and Agriculture and Fishing sectors contributed around 31%, 6% and 5%, respectively. As the expansion of credit towards productive sectors of the economy remained inadequate, the Central Bank, with the support of the banking community, announced priority sector lending targets for banks on lending to the MSME sector in January 2021.