CSBA welcomes removal of 5% ceiling on lending against listed securities

The Colombo Stock Brokers Association (CSBA) yesterday welcomed the removal of the 5% ceiling on lending by commercial banks for trading of listed securities.

“We are pleased to announce that President Mahinda Rajapaksa has taken prompt action in response to the appeals made by the Colombo Stock Brokers Association (CSBA) at our meeting this month at Temple Trees,” the brokers’ body said.

It said that the Central Bank issued a directive to all the commercial banks that the 5% ceiling on lending against listed securities had been removed altogether with immediate effect. Banks can now use their discretion to decide on the amount to be lent to margin trading seeking customers.

“This timely gesture can inject billions of rupees by way of margin trading funds to the stock market,” CSBA added.

“We take this opportunity to thank President Mahinda Rajapaksa, Minister of Economic Development Basil Rajapaksa, Central Bank Governor Ajith Nivard Cabraal and Central Bank Deputy Governor Ananda Silva for taking timely action,” the association said in a statement.

Meanwhile DNH Financial said yesterday it viewed the lifting as being extremely healthy for the market given the additional liquidity that is likely to be generated for investment purposes.

“With the majority of banks enjoying a healthy and well diversified lending mix, we believe that the consolidated net margins of banks could enjoy a moderate rise provided that margin loan facilities are granted in an effective and prudent manner with due consideration towards market trajectory,” DNH said.

“With the domestic macro-economic backdrop looking increasingly strong, we believe that it is not ‘if’ but ‘when’ a market rerating would eventuate and we believe that it is likely to be sooner than later. While we do admit that the bourse has certainly taken its time to absorb the positive development in the economy, we believe however that heading into the year end, the market is likely to positively surprise on investors’ realization that the bourse is backed by solid fundamentals with minimum downside risk potential. We advise investors to carefully stock-pick and re-enter on price weakness,” DNH added.