CB sets...
By this time last year, the heads of licensed finance companies were lobbying the Central Bank to either raise or lift the cap on deposit interest rates, as they were finding it extremely challenging to attract depositors with banks offering higher rates for deposits.
At that time, the deposit interest rate cap on a one-year fixed deposit for a finance company was 12.5 percent, which was then raised to 13.11 percent.
Currently, there are 46 LFCS and by end-2016, they had a Rs.531 billion deposit portfolio. In terms of assets, finance companies accounted for Rs.1,112.1 billion or 7.2 percent of the total financial system in the country.
While there are no deposit interest rate caps on banks, the Central Bank imposes caps on deposit rates offered by the LFCS to prevent them from offering excessively higher rates, to create healthy competition among finance firms and also reduce risk to depositors. personal lending products such as credit cards, housing loans and temporary overdrafts.
The banking sector analysts forecast a tepid second quarter earnings season for banks as most banks may fail to see a considerable level of demand for credit.
On the other hand, there is dull appetite for credit from the borrowers as the higher interest rates turn them away.
Sri Lanka’s household indebtedness has seen a spike in recent years due to excessive borrowings by the people for consumption purposes. But the level is still well below some of the frontier market household debts, the data showed.
Construction made up 7.6 percent of Sri Lanka’s economic activity in 2016, up from 6.9 percent in 2016. The local arm of the real estate consultancy giant Jones Lang Lasalle Incorporated (JLL) recently said that Sri Lanka’s construction to gross domestic product is low compared to the countries at similar development levels.