Sri Lanka - up to 18.5% p.a.

Nov 1, 2009 - Some banks in Sri Lanka offering up to 18.5% p.a. for Sri Lanka Rupee deposits as at October 2009.



NO CHANGE TO DEPOSIT RATES – STATE BANKS


Sri Lanka’s state banks have assured the public that they would not cut deposit rates to bring them in line with the recent lending rate cut although the People’s Bank said they would have to introduce a slight deposit rate reduction for those customers who get high interest rates for their deposits. The heads of the island’s state bank gave this assurance at a joint press conference held with the Minister of Finance yesterday. However, the People’s Bank Senior Deputy General Manager Corporate and International Banking Peoples Bank Kapila Ariyaratne told the media that the Bank would have to implement a slight cut in deposit rates for those customers who earn an interest rate of more than 8 percent. The heads of the other two state banks, namely; the National Savings Bank and the Bank of Ceylon however gave their assurance that they would not reduce deposit rates.

National Savings Bank Chairman S. R. Artigala said the state banks would maintain a 1 percent to 4 percent difference between the lending and deposit rates. He said these state entities will not crash as a result of the rate cuts as they have a market share of over 70 percent today. Besides, he said these banks would benefit as demand for lending would increase by this move.

The heads of the country’s state banks also argued that more money would be pumped into the local economy with the recent rate cut. They noted that demand for credit schemes such as housing loans would increase and therefore the demand for building material would also go up pumping in more money to the economy. However, the state bank officials highlighted the fact that those who have obtained loans for low interest rates would get an interest rate cut of 2 percent while those who have obtained loans for an interest as high as 21 percent would get a 6 percent cut in their rates. They also explained that those who have already obtained loans and are paying interest would also get the benefit of these reduced lending rates.

President Rajapaksa ordered a sweeping 700 basis point cut in state bank lending rates, the lifting of penal rates and the fast-tracking of state worker loan applications earlier this week and ordered the state banks which were lending at around 15 to 22 percent a year to restructure their lending rate to between 8 and 12 percent. The decision was made following a meeting the President had with state bank chiefs, which was attended by Deputy Finance Minister Ranjith Siyambalapitiya and Treasury Secretary Dr. P. B. Jayasundera.

The opposition has questioned the move starting that it could be an ‘election gundu’ charging that this would be only a temporary move. They charged that the People’s Bank in particular would be converted into a loss making venture. The Bank earned a profit of Rs.5 billion but the reduction of the interest rates would turn this profit into a loss of Rs 1.9 billion, the UNP charged on Thursday.