Ceylon FT: The country's capital market watchdog, the Securities and Exchange Commission (SEC) is following the Central Bank's lead and is now resorting to moral suasion to bring down interest rates relating to margin trading and credit extensions provided by stockbrokers.
With the State sector borrowing heavily from the domestic banking sector since 2012, loose monetary policy has seen a significant reduction in interest rates on loans taken by the government and affluent borrowers. Ordinary borrowers have seen their interest rates on loans reduce much slowly whereas deposit rates have fallen sharply, eroding incomes.
The Central Bank has been using moral suasion to convince lending institutions to reduce market lending rates. The SEC has issued letters to stockbrokers and margin providers asking them to reduce interest rates as well.
"It is evident that the stock market has demonstrated a greater stability depicting a positive momentum with the benchmark All Share Price Index recently surpassing the 6,700 mark together with a larger participation of investors in the market and increased level of turnover," the letters, signed by SEC Officer-in-Charge/ Deputy Director General, Dhammika Perera, said.
"It has been observed the average weighted prime lending rate (AWPR) of the Central Bank of Sri Lanka has declined considerably in the recent past and the lending rates on credit extension of certain stockbrokers and rates on margin trading of certain margin providers, have not been adjusted accordingly transferring the benefit of declined rates to clients."
"Hence, the SEC is of the view that it is essential for the lending rates on credit extension be aligned with the policy rates prescribed by the CBSL.
"While thanking those who have already adjusted their lending rates, we urge all stockbrokers and margin providers to act accordingly so that the lending rates of credit extension would be bought to a justifiable level, in line with the prevalent policy rates of the country. All stockbrokers and margin providers are expected to ensure responding forthwith to the above request made by the SEC in a positive manner," the SEC said.
AWPR of the Commercial Banking Sector is an indicative rate compiled by the Central Bank and applies to high net-worth and well-connected borrowers and not ordinary businesses or individuals. The AWPR reached 8.17% in May, down 458 basis points from a year ago.
In May 2014, the average weighted lending rate of the commercial banking sector, which covers AWPR and other borrowing rates, stood at 14.01%, down a mere 225 basis points from a year ago.
The average weighted deposit rate stood at 7.74%, down 300 basis points from a year ago and the fixed deposit rate stood at 9.45%, down 445n basis points from a year ago.
The one year fixed deposit rate at state-owned National Savings Bank was 8%, down 450 basis points from a year ago.
The 12-month benchmark Treasury bill yield was 7.02%, down 384 basis points from a year ago.
www.ceylontoday.lk
With the State sector borrowing heavily from the domestic banking sector since 2012, loose monetary policy has seen a significant reduction in interest rates on loans taken by the government and affluent borrowers. Ordinary borrowers have seen their interest rates on loans reduce much slowly whereas deposit rates have fallen sharply, eroding incomes.
The Central Bank has been using moral suasion to convince lending institutions to reduce market lending rates. The SEC has issued letters to stockbrokers and margin providers asking them to reduce interest rates as well.
"It is evident that the stock market has demonstrated a greater stability depicting a positive momentum with the benchmark All Share Price Index recently surpassing the 6,700 mark together with a larger participation of investors in the market and increased level of turnover," the letters, signed by SEC Officer-in-Charge/ Deputy Director General, Dhammika Perera, said.
"It has been observed the average weighted prime lending rate (AWPR) of the Central Bank of Sri Lanka has declined considerably in the recent past and the lending rates on credit extension of certain stockbrokers and rates on margin trading of certain margin providers, have not been adjusted accordingly transferring the benefit of declined rates to clients."
"Hence, the SEC is of the view that it is essential for the lending rates on credit extension be aligned with the policy rates prescribed by the CBSL.
"While thanking those who have already adjusted their lending rates, we urge all stockbrokers and margin providers to act accordingly so that the lending rates of credit extension would be bought to a justifiable level, in line with the prevalent policy rates of the country. All stockbrokers and margin providers are expected to ensure responding forthwith to the above request made by the SEC in a positive manner," the SEC said.
AWPR of the Commercial Banking Sector is an indicative rate compiled by the Central Bank and applies to high net-worth and well-connected borrowers and not ordinary businesses or individuals. The AWPR reached 8.17% in May, down 458 basis points from a year ago.
In May 2014, the average weighted lending rate of the commercial banking sector, which covers AWPR and other borrowing rates, stood at 14.01%, down a mere 225 basis points from a year ago.
The average weighted deposit rate stood at 7.74%, down 300 basis points from a year ago and the fixed deposit rate stood at 9.45%, down 445n basis points from a year ago.
The one year fixed deposit rate at state-owned National Savings Bank was 8%, down 450 basis points from a year ago.
The 12-month benchmark Treasury bill yield was 7.02%, down 384 basis points from a year ago.
www.ceylontoday.lk
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