Courtesy Hiru News

In a move aimed at promoting financial relief for borrowers, the Central Bank of Sri Lanka (CBSL) has issued an Order to reduce the interest rates on lending products offered by licensed commercial banks (LCBs) and licensed specialized banks (LSBs). The new rates will come into effect from August 25.

Under this directive, the CBSL has mandated a reduction in interest rates for various lending facilities, including pawning services, pre-arranged temporary overdrafts, credit card advances, and both new and existing lending products denominated in Sri Lanka Rupees (LKR).

The CBSL’s decision to lower interest rates on lending products was communicated through an official Order, which also highlighted the maximum permissible interest rates for LKR-denominated lending offerings.

Accordingly, the interest rates on pawning facilities, pre-arranged temporary overdrafts, credit card advances, and new and existing LKR-denominated lending products are also reduced adequately.

In recent efforts to address the issue of excessive interest rates on lending products, the Central Bank of Sri Lanka (CBSL) has taken proactive steps to ensure a fair and conducive borrowing environment for individuals and businesses. Despite prior policy interventions, certain financial institutions have maintained high interest rates on lending products, prompting the CBSL to intervene further.

To counter this challenge, the CBSL’s Monetary Board has issued a decisive Order regarding interest rates applicable to Sri Lanka Rupee (LKR)-denominated lending products offered by licensed banks. The directive mandates a reduction in interest rates across specific lending facilities. Starting from the upcoming billing cycle, pawning facilities are to be capped at 18% per annum, pre-arranged temporary overdrafts at 23% per annum, and credit card advances at 28% per annum.

The CBSL has further directed all licensed banks to implement a substantial reduction of at least 250 basis points in the annual nominal interest rates for all new and existing LKR-denominated lending products (excluding credit card facilities and other categories) by October 31, 2023. Additionally, these banks are expected to make an additional reduction of 100 basis points by December 31, 2023, compared to the interest rates prevailing as of July 31, 2023.

However, the CBSL has acknowledged that if any LKR-denominated lending products maintain an annual nominal interest rate of 13.5% or lower as of August 25 or thereafter, the mandatory reduction does not apply.

Moreover, in cases where the applicable annual nominal interest rate is 13.5% or less on the date of the Order or thereafter, licensed banks are prohibited from increasing interest rates for such lending products beyond the level maintained as of August 25.