Sri Lanka Equity Forum
Dear Reader,

Registration with the Sri Lanka Equity Forum would enable you to enjoy an array of other services such as Member Rankings, User Groups, Own Posts & Profile, Exclusive Research, Live Chat Box etc..

All information contained in this forum is subject to Disclaimer Notice published.


Thank You
Sri Lanka Equity Forum

Discussion Forum for Stock Market Investors in Sri Lanka

Forum Disclaimer

The information contained in this forum have been submitted by third parties directly without any verification by us. The information available in this forum is not researched or purported to be complete description of the subject matter referred to herein. We do not under any circumstances whatsoever guarantee the accuracy and completeness information contained herein.

www.srilankaequity.com its blogs, forums, subdomains and/or its affiliates and/or its web masters, administrators or moderators shall not in any way be responsible or liable for loss or damage which any person or party may sustain or incur by relying on the contents of this report and acting directly or indirectly in any manner whatsoever.

Trading or investing in stocks & commodities is a high risk activity. Any action you choose to take in the markets is totally your own responsibility, www.srilankaequity.com its blogs, forums, subdomains and/or its affiliates and/or its web masters, administrators or moderators shall not be liable for any, direct or indirect, consequential or incidental damages or loss arising out of the use of this information. The information on this website is neither an offer to sell nor solicitation to buy any of the securities mentioned herein. The writers may or may not be trading in the securities mentioned.

You are not connected. Please login or register

Sri Lanka Equity Forum » Stock Market Talk » Sri Lanka Govt ready to squeeze credit to property'

Sri Lanka Govt ready to squeeze credit to property'

View previous topic View next topic Go down  Message [Page 1 of 1]

DS Wijesinghe


Manager - Equity Analytics
Manager - Equity Analytics
ECONOMYNEXT - Sri Lanka is ready to squeeze credit to real estate and construction to protect the banking system, the Central Bank has told the International Monetary Fund.

Sri Lanka has seen a property price boom due to low interest rates, with large volumes of money being printed by the Central Bank to keep down rates and generate a balance of payments crisis from 2015.

Excessive exposure to property, especially commercial loans can lead to defaults, later expanding bad loans. In 2008 after pro-longed low interests and money printing from 2004, a number of finance companies collapsed.

To strengthen the financial system, the Central Bank was ready to impose "macro-prudential tools such as a sector-specific limit on the loan-to-value ratio, including the construction and real estate sectors," a revised agreement with the IMF said.

Sri Lanka first imposed higher loan-to-value ratios to curb credit to vehicles as low interest rates persisted and printed money was used to pay hiked salaries of state workers, and subsidies in a runway budget in 2015.

At the time, analysts warned that sector-specific administrative controls would not work as credit would then flow to a different sector as long rates are kept low with money printing. When rates are kept low with money printing by a central bank, the present value of long-term assets go up, generating a so-called asset-price bubble.

Car loans, which go to imports, are dissipated from the credit system unless the central bank prints money to sterilize forex interventions like in Sri Lanka. But, there are limits to sterilizing forex sales, and rate hikes are eventually forced with continuous forex reserve losses.

However, loans to land in particular keep money cycling within an economy, adding to a bubble.

However, interest rates are now higher, overall credit growth is slower and the Central Bank, instead of printing money, is buying dollars and mopping up part of the dollar purchases by selling down its Treasury bill stock, an action that tends to slow credit growth.

Central Bank Governor Indrajit Coomaraswamy who had now mostly brought the country out of the balance of payments crisis, said in May that a study on real estate credit was underway to find whether a bubble could be forming.

At a recent press briefing, a reporter requested Coomaraswamy to comment on claims said to have been made by developers that apartment sales had halved after his statement.

Coomaraswamy said it was advisable to double-check whether such a slowdown had started before or after his words. (Colombo/Aug11/2017- Update II)

Teller

avatar
Moderator
No way till 2021.

samaritan


Vice President - Equity Analytics
Vice President - Equity Analytics
It was reported recently that the Private sector credit growth is again on the rise. this may prompt CB for another upward revision of interest rates.

Re: Credit squeeze to property sector is like closing the stable after horse had bolted.

Future looks bleak!

anges


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
smart move before the property bubble explodes! a bank valuer told land is being sold in the western province 200%-600% more than the market going rate and they have to value it much lesser ! he is worried

View previous topic View next topic Back to top  Message [Page 1 of 1]

Permissions in this forum:
You cannot reply to topics in this forum