June 19, 2015 (LBO) – Sri Lanka Asia Securities says that small and medium enterprises (SME) will drive banking loan growth going forward.

“The SME sector is expected to drive the economic growth going forward,” Asia Securities says in a recently launched banking report titled ‘Banks: An Evolving Story of Elephants and Cheetahs’.

Banking Loan growth picked up towards the end of the year 2014, resulting in a marginal drop in liquidity, the report says.

Gross loans and advances grew 13.7 percent year on year to 3,894 billion rupees in 2014 (+8.8% YoY in 2013) while deposits grew 12.4 percent to 4,686 billion rupees.

Project loans fueled the growth in 2014, with the 12 local banks disbursing 419 billion rupees during 2014.

However the report says personal loan growth was poor due to private banks reducing exposure to gold loans on the back of declining gold prices and NPLs.

“On the back of major economic expansion in the post war environment, policy changes, and a decline in project loans, the SME sector has become a prime focus for all private banks.” the report says.

According to data present in the report about 90 percent of the businesses registered in Sri Lanka are SMEs recording an annual turnover below 600 million rupees.

“This indicates that the country already has a strong SME sector that will drive economic growth in the future but, is yet to gain a material presence in terms of value in the credit market,”

“Additionally, the fact that domestic credit to the private sector is at a low of 29.2 percent of GDP in the country leads us to believe that there is significant potential for private sector credit growth,”

At present, there are 25 licensed commercial banks and 9 licensed specialized banks registered in the country and operating through 6,554 branches island wide, resulting in a banking density of 17 per 100k persons.

Listed banks accounted for 42.5 percent of total banking assets and warrant a market share of 48.6 percent in gross loans and a share of 42.7 percent of total deposits.

SOURCE: http://www.lankabusinessonline.com/sri-lankas-smes-to-drive-banking-loan-growth-going-forward-asia-securities/