Given the up-hill task shouldered on the banking sector to support the faltering economy, to put the blame on the sector for every economic downfall and making it bear the brunt is totally unfair, said senior bankers debunking allegations that banks are not playing a proactive role at a crucial time and instead offering peanuts to people as returns for investments.
“It is not reasonable to frown at the banking sector for slashing interest rates which is paramount to stimulate the economy and keep businesses afloat when the entire global economy is in a recession,” a senior banker said, adding that all major economies have brought down interest rates to zero to spur economic activity.The US and UK cut interest rates to almost zero and launched stimulus programs to protect the economy from the global pandemic.
The US Fed cut rates to a target range of 0 to 0.25 percent to and launched a US$ 700 billion program to support the economy.
“Everyone will have to be patient and bear up for some time to let the dust settle and the economy to recover to have some comfort,” bankers said.
Those who have been depending on interest income since the outbreak of the killer disease are a displeased lot due to the sharp drop in bank deposit rates which has been the only lifeline to keep head above water with all income sources having dried up.
The Central Bank unveiled a Rs. 50 billion six-month refinancing facility for banks to help businesses, individuals and the self-employed last month.
“Banks and finance companies have to pay the salaries of the staff and meet other recurrent expenditures. Most governments have pumped money to the system to help companies to meet their expenditures. The Government must provide money to people to get on with their industries by way of concessions for a longer period,” bankers said.
“It is only if the corporate sector supported by the banks and financial institutions do well that the economy will prosper and the country would benefit.
A rising tide lifts all boats,” bankers said, adding that the banking and finance sector is currently faced with high liquidity issues, meeting IFRA (Integrated Finance and Risk Architecture) standards and return on assets over the risk taken.Bankers also noted that the Non Performing Loan ratio would certainly rise as many borrowers will not be in a position to repay loans due to the absence of any income for the past four months and as a result banks will have to face the music.
The government and the banking and finance sector regulator were compelled to cut spending through policy rate reductions and banning imports of non essential commodities to prevent to outflow of foreign exchange.
According to the Central Bank, the country’s foreign reserves stand at US$ 7.2 billion, despite a sharp dip this year owing to the global lockdown resulting in low foreign remittances and export earnings.
Given the tough times for the country which is slated to record a wider budget deficit this year due to the shortfall in State revenue derived from income and trade taxes and a burgeoning external debt repayment economic growth is unlikely to notch above one percent according to think tanks.“Sri Lanka also must look at creating a vibrant equity market with the private sector playing a key role bringing in EPF, ETF and insurance into the market,” a banker and an equity market specialist said.
However, the Central Bank said the banking and finance sector must comply with the regulatory requirements and lay a proactive role particularly during the current crisis to help the economy get out of the mess as soon as possible.
“We have noted that certain banks are not complying with the regulations to reduce key policy rates. We will take stern action against the non compliers,” the Central Bank Governor said.
- LF