The Sunday Leader

Banks’ Credit Squeeze Impacts Salary Payments

Imports have declined by 40% in rupee terms, further compounded by banks’ credit squeeze on temporary overdrafts (TODs), a shipper who didn’t want to be named told this newspaper.
Imports have deceased due to various strictures imposed by Central Bank of Sri Lanka (CBSL) in order to avoid a balance of payments (BoP) crisis in the economy.
Complementing those curbs, CBSL has also imposed an 18% credit growth ceiling on banks for this year which however may be up uplifted to 23% provided the balance 5% comes from foreign funding.
The source who is also in the transshipment business said that commercial activity too has had been impacted due to the slowdown in the euro zone area.
He further said that he provides employment to 40. But with the  contraction in business, compounded by the credit squeeze imposed by banks in order to fall in line with CBSL directives on credit growth restrictions, banks have had stopped granting TODs, thereby making it difficult for him to honour the payment of staff salaries as a result.
This shipper’s woes are an echo of what a packaging manager of a private firm told me earlier (see connected article found on this page).
This manager who also didn’t want to be named said that curbs and virtual stoppings of TODs, an action which he said came to the fore three months ago by banks, have resulted in cashflow problems to commercial organizations such as his, coupled with  an impact on inventories.
Meanwhile CBSL’s latest rupee trade statistics showed that overall, imports in July have had come down by 8.9% year on year (YoY) to Rs. 176,594 million. Imports in the first seven months of the year have had however grown by 14.1% YoY to Rs. 1,389,128 million.
Further, it showed that transshipment volumes which comprises 70% of Colombo Port’s business and which caters to the Indian subcontinent, in August, on a YoY basis was flat at 83,974 twenty foot equivalent container units (TEUs).
However transshipment volumes in the first eight months of the year declined by 1.4% YoY to 2,051,513 TEUs.
Meanwhile domestic container traffic, ie imports and exports in August declined by 9.8% YoY to 83,974 TEUs. However in the first eight months of the year those marginally grew by 2.6% YoY to 697,451 TEUs.
Further, total container handling by the Colombo Port in August declined by 3.3% YoY to 362,713 TEUs, while for the first eight months of the year those figures remained unchanged at 2,822,605 TEUs (see also The Sunday Leader business editorial of 7.10.12. and last week’s business pages of this newspaper’s).

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