Sri Lanka's Central Bank called for a reduction of interest rates on pawning loans of several banks Friday.
Sri Lanka Central Bank requested banks to lower down their interest rates for pawning or accepting gold as collateral to 12 percent from the banks' current interest rate is 15 percent for them to be included in the Sri Lankan government's Credit Guarantee Scheme.
"The central bank has requested all banks who are participating in the credit guarantee scheme to reduce the applicable interest rate for such pawning advances to 12 percent from the current rate of 15 percent, with immediate effect," according to a statement release by the Central Bank.
As of the moment, 12 banks have joined in and are eligible in the Credit Guarantee Scheme. Those banks are reportedly offering advances worth more than 80 percent of the market value of gold.
Meanwhile, Commercial Bank of Ceylon has mentioned its motive to cut its interest rates.
"We are lowering our lending rates in line with the new decision," Commercial Bank of Ceylon Chairman Dharma Dheerasinghe stated.
The Central Bank has previously announced last May about the Credit Guarantee Scheme in an effort to increase credit growth. The government of Sri Lanka have been reporting a low credit growth for four years now, according to Business Recorder.
The move is reportedly one of the ways of the Central Bank to lower than interest rates to encourage lending and pawning transactions, which are a popular method of borrowing in Sri Lanka.
Reuters reported that the Central Bank wanted to boost lending to the "private sector at more reasonable interest rates, and thereby support the growth momentum of the economy, given the low inflation environment."
Meanwhile, several banks reported monumental loses because the price of gold went down dramatically last year causing them to give out smaller loans with lower-value collaterals.
