by jayathu Today at 9:34 am
» INTRODUCING KALKUDAH DISTILLERIES
by kalu_mahaththaya Today at 8:50 am
» IT IS CLEAR NOW,, SHARE PRICES ARE NOT DEPEND ON COMPANIES PERFORMANCE
by kassachandi Today at 8:36 am
» Former SEC Chairman Dr. Nalaka Godahewa on 'Thilak's Reinvention of the Wheel'
by Hanoifortune Today at 8:33 am
» Monetary Policy Review March 2017 - Rates Incresed
by dul324 Today at 8:10 am
» රට හැර යන්නේ ඩොලර් පමනක් නොවේ
by nirowat Today at 7:43 am
» ASI GOING TOWARDS 6000
by nimantha80 Today at 7:35 am
» Foreigners are buying shares
by stockback Yesterday at 7:43 pm
» සුද්දන් රටටම කොචොක් කරයි....
by kalu_mahaththaya Yesterday at 5:25 pm
» ඇන්ටනෝව් යානා ගුවනේ දී පිපිරවූ කොටියා සහ විමල් වීරවංශ
by nimantha80 Yesterday at 4:53 pm
» WHERE IS THE COUNTRY GOING?
by Lucky Gamage Yesterday at 4:50 pm
» Positive and Negative comments welcome
by jayathu Yesterday at 11:49 am
» No need to sell Alumex Under 19....Don't sell ...
by asitha1952 Yesterday at 11:45 am
» HNB Bank money robbery spread to SAMPATH..ANOTHER CHEATING BANK SAMPATH.....
by jayathu Yesterday at 10:35 am
» ALUM Should reach to 22 levels..before next report..
by asitha1952 Yesterday at 9:36 am
» Get ready for April rise...
by kalu_mahaththaya Yesterday at 8:37 am
» JKH Prices dropped to 2009 Prices...
by jayathu Wed Mar 22, 2017 2:06 pm
» Ravi to receive Asia Pacific’s best Finance Minister Award on Friday
by Eugine Fernando Wed Mar 22, 2017 1:19 pm
» ANOTHER CSE BAILA..................
by samaritan Wed Mar 22, 2017 12:11 pm
» STATE CORPORATIONS ARE DOING WELL UNDER YAHAPALANAYA
by jayathu Wed Mar 22, 2017 11:47 am
» SITE IMAGE CHANGED...?
by kalu_mahaththaya Wed Mar 22, 2017 11:23 am
» KO BAN ARA MARKET EKE SUPPROTING LEVEL HOYANA UN TIKA????
by Lucky Gamage Wed Mar 22, 2017 10:55 am
» Rate hike is likely
by plsp1 Wed Mar 22, 2017 10:47 am
» AFSL update...
by Wimal Modawansa Wed Mar 22, 2017 8:49 am
» Hyatt, Grand Oriental Hotel, Waters Edge, Hilton and Lanka Hospitals to be listed
by jayathu Wed Mar 22, 2017 7:54 am
» Rest in peace
by Lucky Gamage Tue Mar 21, 2017 2:23 pm
» Sri Lanka meets eligibility criteria for GSP Plus, says EU technical report
by Mubin Mustafa Tue Mar 21, 2017 11:30 am
» Shares VS Fixed Desposit
by Mubin Mustafa Tue Mar 21, 2017 11:18 am
» What happend Sri Ranga????
by Chinwi Sun Mar 19, 2017 12:25 am
» Teller, The Great Manipulator Of HEXP
by J-CAT Sat Mar 18, 2017 7:39 pm
» End or the Begining of Nimal Perera?
by Quibit Fri Mar 17, 2017 8:59 pm
» Sri Lanka: Young Bond King Arjun Aloysius' Media Company iMN (Integrated Media Network) in Search of Journalists
by samaritan Fri Mar 17, 2017 7:39 pm
» Sri Lanka: State Defence Minister Ruwan quits his father's Board at LPRT but to continue to be the second largest shareholder
by Varshaa Selvanathan Fri Mar 17, 2017 3:25 pm
» BFN - BUY Signal !!!!!!!!!!!!!!!!!!!
by reader Fri Mar 17, 2017 1:08 pm
» VFIN target price -- Rs 80.00 within 2 months
by Wimal Modawansa Fri Mar 17, 2017 11:15 am
» PLC.N & GLASS.N
by Wimal Modawansa Fri Mar 17, 2017 11:13 am
» ARPICO INSURANCE - BUY
by Wimal Modawansa Fri Mar 17, 2017 11:11 am
» AUTODROME PLC DEALINGS BY DIRECTORS
by visvajith Fri Mar 17, 2017 10:14 am
» Maritime terrorism an emerging threat in Indian Ocean, says Sri Lanka PM Ranil Wickremesinghe
by Yahapalanaya Fri Mar 17, 2017 9:29 am
» Sri Lankan Capital Market To Woo Investors From Australia And New Zealand
by Eugine Fernando Fri Mar 17, 2017 8:21 am
» They say Ratmalana to become 3rd Int Airport
by Chinwi Fri Mar 17, 2017 8:17 am
» TO DIMANTHA MATHEW --> SO CALLED RESEARCH EXPERT
by soileconomy Fri Mar 17, 2017 6:55 am
» ඩෙංගු වසංගතය පැතිරේ - සටන කරන හැටී හරිද ?
by Chinwi Fri Mar 17, 2017 12:20 am
» NAMU - HIGHLY POTENTIAL STOCK
by bullstreet Thu Mar 16, 2017 7:20 pm
» Technical bounce now
by samaritan Thu Mar 16, 2017 5:40 pm
» PENDING PROPERTY BUBBLE BURST!
by jayathu Thu Mar 16, 2017 11:02 am
» RWSL, LOFC , AAF
by stockback Thu Mar 16, 2017 10:05 am
» Royal - Thomian
by Eugine Fernando Thu Mar 16, 2017 9:16 am
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by kks17 Thu Mar 16, 2017 6:09 am
» REXP REXP.
by kassachandimal Wed Mar 15, 2017 6:34 pm
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by D.G.Dayaratne Wed Mar 15, 2017 3:57 pm
» 13.03.2017 - Chart expect Double bottom
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by plsp1 Wed Mar 15, 2017 12:50 pm
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» AINS ..........DEAL
by sureshot Tue Mar 14, 2017 6:31 pm
» What is Bitcoin and other cryptocurrency's legality in Sri Lanka.
by anjelo Tue Mar 14, 2017 12:35 pm
» last few years Budgets.
by samaritan Tue Mar 14, 2017 9:43 am
» Three large European funds visit CSE
by Equity King Tue Mar 14, 2017 8:38 am
» HEXP high divided on the way.
by Miss-Sangeetha Tue Mar 14, 2017 8:21 am
» MRP of chicken withdrawn
by TuTanKaman Tue Mar 14, 2017 7:11 am
» SAMP 17 rs announcement ahead..feb
by worthiness Mon Mar 13, 2017 7:40 pm
» CEYLON COLD STORES PLC(CCS.N0000)
by rosa maria Mon Mar 13, 2017 7:20 pm
» Teller please comes back to the forum
by Miss-Sangeetha Mon Mar 13, 2017 12:57 pm
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by jayathu Mon Mar 13, 2017 8:29 am
» මහින්ද මොනවද කලේ?
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by anges Thu Mar 02, 2017 12:49 am
Fitch said in an report on the outlook on Sri Lankan banks that loan to deposit ratios of some banks with "less mature deposit franchises" are approaching 100 percent.
Loan to deposit ratios have risen from about 77 percent by end-2010 to 80 percent by June 2011. By September loan to deposit ratios of banks tracked by Fitch had risen to 90 percent.
Sri Lanka's Central Bank started to defend a dollar peg actively from around July by selling foreign exchange to banks in return for rupees as credit growth picked up and put pressure on a dollar soft peg.
The foreign exchange interventions caused liquidity shortages, forcing rates up, even though there has been no formal raising of policy rates.
Fitch said deposit rates have risen and bank net interest margins were shrinking.
To prevent rates rising further, the Central Bank offset or 'sterilized' interventions in the forex market by purchasing Treasury bills including from banks and injecting liquidity (printing money) in to money markets.
The liquidity fuels new credit, triggering fresh imports, resulting in further reserve losses, creating a vicious cycle of expansionary sterilized interventions.
Balance of payments crisis are a problem associated with so-called 'soft-pegged' central banks which try to target an exchange rate and then also tries to control interest rates by printing money.
Fitch said banks have been selling down liquid assets held largely in the form of government securities which are gradually channelled into lending, though lenders have to keep at least a 20 percent liquid asset to total liabilities ratio to meet regulations.
The Central Bank held 180 billion rupees of Treasury bills in its domestic asset portfolio by January 2012 from near zero in July 2011 as balance of payments pressure gathered pace.
Banks are now paying as much as 12 percent or more for customer deposits but 3-month Treasury bills yield as little as 8.67 percent and 12-month bills only 9.30 percent creating an incentive to get rid of Treasuries.
LBO's economics column warned over five months ago that banks were not raising enough deposits to fund rising credit growth and that the country was heading towards a balance of payments pressure and rates have to be allowed to move up fast to prevent the peg breaking.
"There is a persistent imbalance between loans made and deposits raised by the banking system, indicating that a market clearing interest rate is needed to maintain the peg to the US dollar," LBO's economics columnist fussbudget warned in August.
"To head off any 'balance of payments' problem the central bank has to weaken the rupee or allow interest rates to go up. If neither happens, credit expansion is on track to crash land in the balance of payments."
When banks raise deposits consumption is curbed (reducing pressure on the forex market) and only that 'demand' is released as credit.
But when Treasury bills are sold to the Central Bank, newly printed money is expansionary generating new aggregate demand and pressure on the peg through imports.
"Deteriorating loan to deposit ratios and declining liquid assets demonstrates in practice how this phenomenon works through the balance sheets of banks," LBO's economics columnist fuss-budget says.
"It is also interesting to note that the decline in liquid assets is the first step of how a currency crisis transforms into a banking crisis.
"The emerging trends in the banking system should be carefully noted and not forgotten so that interest rates are allowed to move up in the future without delay so as to head off episodes to balance of payments pressure as soon as credit growth becomes too strong."
A fully fledged banking crisis happens when interest rates rise and remain at levels for long enough so that it no longer makes sense for businesses to borrow and they start to default and bad loans mount.
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