COLOMBO: Sri Lanka's central bank requested banks on Friday to cut interest rates on loans in which banks accept gold as collateral, or pawning, to 12 percent if they want to be eligible for a government credit guarantee scheme. Banks had been charging 15 percent interest on such loans.
The central bank in May announced a credit guarantee scheme for loans backed by gold as collateral, in a bid to boost credit growth which fell to a four-year low in March. Pawning is a widely used method of borrowing in Sri Lanka.
"The central bank has requested all banks who are participating in the credit guarantee scheme to reduce the applicable interest rate for such pawning advances to 12 percent from the current rate of 15 percent, with immediate effect," the central bank said in a statement. It said 12 banks had joined the scheme and those banks grant loans worth up to 80 percent of the value of the gold used as collateral.
The scheme, and other central bank measures to try and boost lending, have yet to lift credit growth in the private sector.
Banks lost huge amounts of money last year as the gold price plummeted because that encouraged banks to make smaller loans and as defaults left them with lower-value collateral.
Loans provided by pawning at Sri Lankan banks fell 13.7 percent last year to 292.9 billion rupees ($2.25 billion), according to central bank data.
Comments
Comments are closed for this article.