CB to introduce new scheme for housing to revive COVID-19 groups

The Central Bank (CB) is working on giving housing loans to lower to middle income groups affected by COVID-19.

"We are working on a new subject area for a credit programme in this regard. We will inform the details soon," Pro f. W. D. Lakshman, Governor CB said responding to a question by the Business Times at the CB's Monetary Policy Review media conference on Thursday. He referred to the subject during his speech at the start of the conference highlighting the housing credit programme for low and middle income groups to be started by CB which will promote inclusive economic growth.

An economist raised concerns noting that this is a sectoral credit scheme which isn't provided for the CB by law. It was understood that under the Monetary Law Act (MLA) such a scheme by the CB is not possible. "The CB gives shortterm credit to financial institut i o n s. A Housing Cre d i t Programme cannot be carried out by the CB."

According to sources at the Treasury, money printing will be deployed to carry out this scheme. Going forward, the CB also has plans to introduce similar schemes to the other sectors such as tourism etc.

The CB also announced a cut in interest rates for credit cards to 18 per cent from 28 per cent and a reduction in pawning facilities to 10 per cent.

Prof. Lakshman in his speech noted the positives in the economy such as the political stability, domestic economic activity recovering relatively fast despite the bleak conditions in partner economies, greatest ability in the external sector indicators and the market lending rate responding to eased monetory conditions. "Sovereign bond yields declined significantly, exports rebounded, trade deficit improved and except in the past few days, the exchange rate has well-behaved," he said noting the external sector indicators.

Pointing out the negatives, he said that the first quarter GDP estimates indicated a contraction and a contraction is also expected in the second quarter. Also weak global economy conditions which are expected to continue will have a negative impact on the domestic economy’s growth, he added. He also noted that the CB is yet to see any increase in private sector credit despite declining interest rates. Prof. Lakshman mentioned that low revenue collections impacted fiscal sector indicators increasing more government reliance on the banking sector for its cash flow requirements.

He noted that the CB will encourage banks to mobilise deposits at ' reasonable' interest rate to customers.

The CB plans to revive weak finance companies and the details will be made public in a few weeks.

This plan will involve consolidation and have some mergers and acquisitions, CB Deputy Governor

H.A. Karunaratne said responding to a question by the Business Times. "We are indicating to the industry to come up with some proposals in line with our suggestions. We will inform the details in a few weeks."

He said there are three types of companies that CB has identified in the finance companies' sector. "One is strong companies, mid-tier companies and weaker companies. There are a couple of avenues available (for revival) for these and one is consolidation. We also have a type of framework for mergers and acquisitions," he explained.

Analysts say this will be similar to the CB banking and financial sector consolidation process launched during the latter part of the Mahinda Rajapaksa government led by then Governor Ajith Nivard Cabraal in a bid to strengthen the sector to withstand shocks and support the next phase of the country’s development financing large scale projects. Mr. Cabraal is now the State Minister for Finance and Capital Markets.