CB sets maximum interest rates on mortgage-backed housing loans, to introduce lending targets 

November, 26, 2020

Sri Lanka's Central Bank will introduce maximum interest rates on mortgage-backed housing loans for salaried workers from licensed banks and set lending targets for certain sectors in the near future in conformity with the policies of the Government, Central Bank Governor Deshamanya Prof. W.D. Lakshman said whilst addressing the final Monetary Policy review press conference for this year.

" The Central Bank in the recent past introduced maximum interest rates on various lending products. In the same spirit and in line with the budget 2021, the Monetary Board decided to introduce a cap on mortgage-backed housing loans obtained by salaried employees in both public and private sectors. The necessary regulations will be issued within the next few days," the Governor said.

Accordingly, licensed banks will be made to charge only 7% per annum for such loans, at least for the first five years of the loan tenure and the remaining tenure of the loan is to be charged at the monthly Average Weighted Prime Lending Rate (AWPR) plus a margin of up to 1 % point.

"Moreover, the Board was also in agreement to introduce lending targets to Banks to specified sectors in order to direct credit to sectors which have a greater growth and earning potential. Information on this will be made available to the public after a further planned deliberation of the Monetary Board on this subject," he added.

Further, the Governor urged all financial institutions, led by licensed commercial banks (LCBs), to pass on the benefit of the low interest rate environment expeditiously to their borrowers, in respect of new as well as existing facilities.

"Already the policy measures taken thus far have resulted in low interest rate and a pick  up in credit growth. We urge banks and other financial institutions to pass on the full benefit of the current relaxed policy environment to their borrowers without reducing deposit interest rates further as there is space to do so."

Sri Lanka’s Central bank left its key interest rates unchanged on Thursday (26). The Central Bank of Sri Lanka kept the standing deposit facility rate and the standing lending facility rate at 4.50% and 5.50%, respectively. The statutory reserve ratio was also left unchanged at 2%.

 

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