ECONOMYNEXT – Sri Lanka finance companies have increased their holdings of government securities, repos and also unit trusts in the first half of 2024, official data showed, as car imports were banned following forex shortages from inflationary rate cuts in 2020.
“Recovering business activities amidst reduced market interest rates contributed to an increase in the demand for credit despite challenges in the sector’s key business segments, such as vehicle leasing and hire purchase,” the central bank said in a report.
Loans and advances of the finance companies started to expand in 2024 after a contraction in credit in 2023, which the central bank said reflecting improved macroeconomic conditions and demand for credit.
Gross loans and advances of the sector had increased by 11.4 per cent, reaching 1,359 billion rupees at end of the second quarter of 2024.
Total investments had grown at double the pace of 22.6 per cent, to 401.7 billion by the end of the second quarter compared to 327.7 billion rupees from a year ago.
Investments in government securities accounted for 39.8 percent of the total.
“Meanwhile, the sector displayed an increase in the preference towards investments in unit trusts and the repo market during the period under review,” the central bank said.
Investments in unit trusts had increased to 5.9 percent of the total from 1.6 percent and in repos from 9.3 percent to 15 percent.
It is not clear whether the repos and unit trusts were also linked to government securities.
Sri Lanka is planning to open imports of cars in 2025. Vehicles were one of over 3,000 imports banned as rates were cut with printed money, either through primary or open market operations.
In 2020 the central bank bought large volumes of maturing bills, injecting money into banks and other customers that previously held the securities.
In 2021 and 2022 large volumes of money was injected through various open market operations and standing facilities to offset interventions in forex markets (sterilized forex sales) and keep down interest rates. (Colombo/Nov12/2024)