'Banning' banks from leasing (consumer finance) activities and limiting such institutions' exposure to gold backed financing are good moves, considering the seemingly uncollateralized nature of finance of the former and the volatility in gold prices.
Moody's in a statement released yesterday, commenting on some of Budget 2016 proposals, vis-à-vis the banking sector, said that by such limitations, it will encourage the growth in other sectors of the economy such as 'women in business'.
Following are excerpts from this report: Budget 2016 of 20 November, presented by Finance Minister Ravi Karunanayake, proposed introducing limitations on pawning loans and consumer finance loans for the.....country's commercial banks.
The proposal is credit positive for Sri Lankan banks because it will limit their exposure to these higher-risk loans, said Moody's. "Two of our rated entities, Bank of Ceylon (BOC, B2/B1 stable, b17) and Hatton National Bank plc (HNB, B2 stable, b1) are among the banks that will benefit from these tighter rules, it said.
Karunanayake also proposed limiting pawning loans to 5% of a bank's loan book. The quality of these loans is directly linked to volatile gold prices, which makes them risky for banks.
'Problem' loans for Sri Lanka's commercial banks increased materially in 2013 following a 27% decrease in gold prices that year, said Moody's. The asset quality of Sri Lankan banks has stabilized as banks shrank their pawning loan books to 5.2% of gross loans as of the end of June 2015, from 14.4% at the end of 2012, it further said.
The proposed 5% cap will further decrease banks' exposure to these loans and will prevent excessive growth in this segment if gold prices increase. The second proposal mandates that banks cease consumer finance lending starting 1 June 2016.
Such loans are provided to individuals and are typically higher risk and unsecured. As of the end of June 2015, consumer finance loans comprised around 5% of gross loans for the five largest banks engaged in consumer lending.
For those banks, the growth in this segment has been rapid, averaging a compounded annual growth rate of 44% over the past four years, compared with a 24% growth in gross loans excluding consumer finance.
www.ceylontoday.lk
Moody's in a statement released yesterday, commenting on some of Budget 2016 proposals, vis-à-vis the banking sector, said that by such limitations, it will encourage the growth in other sectors of the economy such as 'women in business'.
Following are excerpts from this report: Budget 2016 of 20 November, presented by Finance Minister Ravi Karunanayake, proposed introducing limitations on pawning loans and consumer finance loans for the.....country's commercial banks.
The proposal is credit positive for Sri Lankan banks because it will limit their exposure to these higher-risk loans, said Moody's. "Two of our rated entities, Bank of Ceylon (BOC, B2/B1 stable, b17) and Hatton National Bank plc (HNB, B2 stable, b1) are among the banks that will benefit from these tighter rules, it said.
Karunanayake also proposed limiting pawning loans to 5% of a bank's loan book. The quality of these loans is directly linked to volatile gold prices, which makes them risky for banks.
'Problem' loans for Sri Lanka's commercial banks increased materially in 2013 following a 27% decrease in gold prices that year, said Moody's. The asset quality of Sri Lankan banks has stabilized as banks shrank their pawning loan books to 5.2% of gross loans as of the end of June 2015, from 14.4% at the end of 2012, it further said.
The proposed 5% cap will further decrease banks' exposure to these loans and will prevent excessive growth in this segment if gold prices increase. The second proposal mandates that banks cease consumer finance lending starting 1 June 2016.
Such loans are provided to individuals and are typically higher risk and unsecured. As of the end of June 2015, consumer finance loans comprised around 5% of gross loans for the five largest banks engaged in consumer lending.
For those banks, the growth in this segment has been rapid, averaging a compounded annual growth rate of 44% over the past four years, compared with a 24% growth in gross loans excluding consumer finance.
www.ceylontoday.lk
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