Forewarned

Dec 07, 2007 (LBO) – Sri Lanka's private sector credit is slowing but lenders should tighten standards and improve risk management as interest rates continue to rise, the Central Bank has warned. In a report on the island's financial sector stability, the regulator said private sector credit has grown around 24-26 percent in the first half of 2007, with the rate falling to 26.1 percent in May, 24.5 percent in June and 24.0 percent in July.

Private sector credit growth would be around 20-21 per cent by end 2007 as against a target of 17.6 percent set by Central Bank.

"This trend is expected to continue during the balance part of the year with the continuation of the tight monetary policy stance and due to prevailing high market interest rates on lending," the Central Bank said.

The regulator asked lenders to tighten standards and look closely at funding sources.

"The high growth in bank lending could bring about a rise in credit risk and non-performing loans and banks need to improve asset-liability management to mitigate liquidity and market risks arising from asset liability mismatches," the report said.

The regulator asked banks not to finance loans out of the short-ter