Sri Lanka state, SOE, bank borrowings top Rs100bn in March

The engine of economic growth, the private sector, saw credit from the domestic banking system pick up in March, but the state borrowed more than two and half times as much from the domestic banking system, raising concerns about the crowding out effect, while government borrowings from the monetary authority also grew for the first time this year, latest data released by the Central Bank showed.

After new loans totaled Rs.17.4 billion during the first two months of this year, private sector credit from domestic banks gained another Rs. 20.1 billion in March 2013, taking the total of new loans to Rs. 37.5 billion for the first quarter of 2013, latest data released by the Central Bank showed.

The government on the other hand, got new loans from the banking system to the tune of Rs. 45.4 billion in March, more than double of what the private sector received, taking the total up to Rs. 140.4 billion in new loans from the domestic banking system during the first quarter of 2013.

Public corporations borrowed Rs. 6.2 billion in March from the domestic banking system, taking the total of new loans during the first quarter to Rs. 10.1 billion.

The state has in effect borrowed Rs. 51.6 billion in total in March, and Rs. 150.5 billion during the first quarter from domestic banks.

In March the Central Bank also lent the government Rs. 20 billion, reversing two months of settlements after the government paid back Rs. 12.5 billion in January and Rs. 21.2 billion in February.

As far as growth rates go, net credit to the private sector from domestic banks grew 12 percent year-on-year, down from Rs. 14.2 percent a month earlier to Rs. 2,209.6 billion. Borrowings from foreign banks fell 1.5 percent to Rs. 186 billion.

The Central Bank has maintained that growing the per capita income of the country would require bank lending to the private sector to increase.

"Our aim is to increase the per capita income to to US$ 4,000 by 2014 and this would mean that total lending of the financial sector would have to be increase to almost Rs. 3.3 trillion," Cabraal said presenting the road map for the Central Bank’s monetary and fiscal policies for 2010 and Beyond in January that year.

In the same speech, Cabraal warned that the government should not engage in reckless spending and print money to bridge budget deficits as it would put pressure on capital available to the private sector. For the same reason, he also urged public corporations to seek funds from external markets.
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May 26, 2013 (LBO) - Bank credit to Sri Lanka's state enterprises and central government surged to 100.6 billion rupees in March 2013 from 36.7 billion a month earlier, perhaps the highest ever in a single month, official data shows.

The central government borrowed 65.1 billion rupees from the banking system including 20 billion rupees in Central Bank credit (printed money), while state owned enterprises borrowed another 33.5 billion rupees, indicating the pressure on state finances.

About 30 billion rupees of SOE credit came from foreign currency banking units in March, data from the Central Bank showed.

In April state-run Bank of Ceylon borrowed 500 million US dollars from an international bond easing pressure on domestic credit markets.

From May electricity prices have been raised and there has also been good rainfall, which will help cut state enterprise losses.

It is not clear whether the March borrowings are for current year spending, due to revenue shortfalls, or to even partly cover arrears from last year.

The International Monetary Fund said about 0.5 percent of gross payment areas were pushed to 2013 to show a 6.4 percent of gross domestic budget deficit in 2012.

But the broader public sector deficit with loss making energy enterprises was 8.6 percent of GDP in 2012.
The March borrowings are the highest since the central government and state enterprises borrowed 96.4 billion rupees in January 2012, at the height of Sri Lanka's last balance of payments crisis, with central bank credit expansion partly driven by sterilized forex sales.


By end March, net credit to government (including central bank credit which had been contracting in previous months) was up 18.5 percent to 1,180.5 billion rupees with borrowings from rupee banking units was up 41.9 percent to 774.4 billion rupees from a year earlier.

Borrowings from foreign currency units were up 14 percent to 141 billion rupees equivalent in the 12 months to March.

Loans to loss making state enterprises were up 35.8 percent to 335.5 billion rupees from a year earlier.

State borrowings from the banking system have kept interest rates high and the private sector has been crowded out.

Credit to the private sector fell 9.5 billion rupees in March falling from a spurt of 18.0 billion seen in February with a 19.1 billion rupees growth in rupee borrowings slowed by a 11.1 billion rupees contraction in foreign currency loans.

Credit to private sector was up 10.9 percent from a year earlier to 2,395.6 billion rupees, slowing from 13.3 percent in February.

In the first quarter private sector credit grew just 37.2 billion rupees, compared to a 178.3 billion rupees expansion in net credit to the state or about 2.7 percent of projected GDP for 2013 including state enterprises, indicating the extent of a fiscal crunch.

Excluding contractions in Central Bank credit the state and state enterprises have borrowed 192.1 billion rupees in the first quarter or about 3.6 percent of GDP.

Monthly fiscal data for the first quarter which are usually released by the Central Bank from around April not so far been published for 2013.
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