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Sri Lanka Equity Forum » Stock Market Talk » Sri Lanka holds rates, state guarantee for gold-backed loans: Central Bank

Sri Lanka holds rates, state guarantee for gold-backed loans: Central Bank

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Harry82

Harry82
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Sri Lanka holds rates, state guarantee for gold-backed loans: Central Bank
20 May, 2014 08:00:05
May 20, 2014 (LBO) - Sri Lanka's Central Bank held policy rates at 6.5 and 8.0 percent with private credit showing positive growth in March, and said a government credit guarantee would be available for gold backed loans.

Gold-backed loans from banks have contracted after gold prices fell and borrowers defaulted making banks more cautious to lend.
"In order to counter the effect of the continued decline in pawning advances on productive sectors of the economy, the Monetary Board also granted approval to implement a credit guarantee scheme on pawning advances on behalf of the government," the Central Bank said in its May monetary policy statement.

In March commercial banks had increased rupee denominated loans to private borrowers by 15.3 billion rupees but some repayments of dollar borrowings foreign invested firms, reducing the total to 7.6 billion rupees.
"The sharp decline in pawning advances contributed largely to the continued low growth of credit to the private sector," the Central Bank said.

Octopus

Octopus
Expert
Expert
gold prices further down....! oil prices under control.....!
who is going to mostly hurt and benefit in CSE?

Harry82

Harry82
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Sri Lanka to give credit guarantee for gold-backed loans
20 May, 2014 08:41:31
May 20, 2014 (LBO) - A credit guarantee scheme covering gold-backed loans or pawning advances will be set up so that banks will have more comfort to lend against the asset, Central Bank Governor Nivard Cabraal said.

"It will be self-funding operation, which will give a comfort to the banks, so that the appetite for gold backed lending will not diminish," he said.
"It will work on a premium will pay which will create the fund."

The Central Bank will contribute an initial 500 million rupees to the fund on behalf of the government.

Lenders are now give about 65 percent of the gold value as loans and the credit guarantee will allow them to loan about 15 percent more, he said.

The coverage will apply to new loans, he said.

The price of gold has been volatile in recent years and fell to around 1300 US dollars an ounce after peaking around 1700 to 1800 dollars in the same year.

Gold-backed loans have been a hassle-free credit scheme used around Sri Lanka, because the collateral can be easily sold to recover defaulted loans, at least until now.

But banks saw defaults rising on the credit when gold prices fell and values fell below the collateral.
Sri Lanka's private credit growth has slackened in 2013 after the end of a balance of payments crisis in 2011/2012 and loan growth became negative in February and March.

Many banks have sharply cut their gold backed loan portfolios in the first quarter. Sampath Bank, a private bank that has lent aggressively against gold saw a net contraction in their entire balance sheet as part of the correction process.

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