Speaking to The Nation Gain, top officials of upcoming banks such as Nations Trust Bank (NTB), PABC Bank and Union Bank (UB) said that the credit ceiling imposed has not created a ‘level playing field’ to compete with large players in the banking sector.
“The larger banks may not feel the impact of the contraction of credit to a greater extent because out of a colossal amount of an asset base of a such a bank, 23% credit growth would also result in a huge amount whereas emerging banks who operate with comparatively much lower asset base would feel the pinch strongly,” CEO of NTB Saliya Rajakaruna said.
He therefore lamented that the credit ceiling imposed would affect the growth of the upcoming, small banks in the country who have been vying in a fiercely competitive industry environment. Expressing a similar sentiment, Chief Financial Officer of PABC Mangala Gamage, however, said that the credit ceiling had brought them ‘a mixed bag of both challenges and opportunities’.
“We never expected the credit curtailment during our budget cycle last year. So, we had to re-look at our strategies and to re-structure our Balance Sheet accordingly. There are, of course, more challenges such as restricting growth, offering deposit products with optimal price (interest rates),” Gamage said.
Highlighting the opportunities, he said the banks of this scale could always identify growing and profitable areas of the economy to channel funds even under this restricted scope. Meanwhile, the Head of Credit at Union Bank PLC, Ravi Diwulwewa said they had had a credit growth of 60% last year but now they have to operate under the new directive of 23%, which would result in a sharp contraction of credit. Therefore, with the new rule, he said the bank was now focusing on high yielding products such as leasing and pawning.
Also speaking to The Nation Gain, the Additional Director of the Bank Supervision Department at CBSL, J P R Karunarathne while agreeing that this could create some sort of an edge for larger banks because of the differences in the lending volumes, said that the directive was taken in agreement with all banks considering the macroeconomic environment and reiterated that directive could be reconsidered at the end of this year if the government could achieve the expected economic targets. Meanwhile, a top banker and the CEO of DFCC bank, Nihal Fonseka speaking on the issue said he did not consider the move to restrict the credit growth to 23% from a whopping 34.5% in 2011 because until few years ago the banking sector did not even come closer to 23% of credit growth.