SRI LANKA BANKING UPDATE : Cap on Penal Interest Rates…. Central Bank (CBSL) decided to impose a cap on penal interest rates charged on Loans and Advances by Banks, Finance and Leasing Companies. Thereby with effect from 01st of August 2013 penal interest rate cap on loans and Advances (including facilities already granted) would be 2.0% p.a. for Banks and 3.0% p.a. for Finance and Leasing Companies. CBSL survey has revealed that the current penal interest rates charged by Banks are in the range of 2.0%-20.0% p.a. and in respect to Finance and Leasing Companies it’s in the range of 36.0%-48.0% p.a. over and above the original interest rates. CBSL has noted that current penal interest rates charged by Banks, Finance Companies and Leasing Companies are on the high side and such rates are an undue burden to overdue borrowers. On the positives, this would be a relief to customers who are currently on overdue status to pay up and service the loan. However we believe this cap would impact the banks negatively where they need to cut down the current penal interest rates of 5.0%-6.0% (ave. rate charged by systematically important private commercial banks) to 2.0%. Further this could sometimes act as an incentive to delay the payments (specifically on Overdrafts, Leasing etc..) which would increase the overdue Loans and Advances of Banks. We believe this could also act as a barrier to bring down the market interest rates where Banks would charge a higher interest rate on their primary lending with the anticipation of compensating for the funding costs on their overdue interest income. TKS Research Read More... tks.lk/images//weekly/caponpenalinterestrate.pdf
Posted on: Tue, 30 Jul 2013 09:56:43 +0000
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