Sampath Bank expects interest rates to rise by 100 basis points

By Shehan Dain

Sampath Bank PLC, Sri Lanka’s third-largest privately owned lender by assets, predicts interest rates to go up by at least 100 basis points by the end of the year.

 “The million dollar question for us right now is to know by how much the interest rate will rise. Our deposit taking strategy will depend on that, whether we should take short term or long term loans. In my view the rates could go up by another 100 basis points within a year,” said Sampath Bank Managing Director Aravinda Perera while addressing the gathering in the sixth customary bell ringing ceremony at the Colombo Stock Exchange (CSE) trading floor on Friday.

Responding to a query raised by the media on regional expansion Perera said that the bank is currently eyeing lucrative opportunities in Myanmar waiting to hit the correct chord.

 “We already have a rep office in Myanmar which we opened a few months ago. We are watching what’s happening there; while currently there are positives it’s still not enough for us to start operations in a meaningful way. We are watching the situation and if it permits we will consider it. We already have a presence in Bangladesh with Lanka Bangla Finance which has given us a lot of money,” he added.

Noting that the drying deposit base of the banking sector is a matter of concern he said that the bank will look into further debt listing in the CSE for funding purposes.

“Last year our loan book grew about 20% and this year it would probably be more than that. We have enough and more proposals coming our way while the issue is the deposit growth is slow. We probably will have to start thinking about debentures and borrowings from overseas. This has been the case for the whole banking sector for the last three to four years.”

The bank has thus far gone ahead with three debenture issues since 2013 while its most recent debt issue was in November 2015 where it raised Rs. 7.4 billion. Moreover the CSE saw a record year for corporate debt in 2015 as it raised Rs. 81 billion depicting a vast gap from the turnover generated of only Rs. 4.5 billion.

Additionally Sampath Bank’s Managing Director stressed that CASA (Current and Savings Account ratio) is dropping as a result of the increasing attractiveness of fixed deposits over savings deposits. He insisted that this could negatively impact the banks operational efficiency if prolonged, and urged for a smoother transition.  

“CASA is dropping. The rates were almost the same about a year ago while currently the fixed deposit rate is going up. When there is a gap between the two a lot of people are moving from savings to fixed deposits. What we would like to see is a more balanced change rather than a rapid change therefore our strategies can be planned in a better way to overcome that issue.”