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Wednesday, May 11, 2011

CB defends equity lending restrictions

Ravi LADDUWAHETTY

The Central Bank yesterday defended its decision to get licensed banks to limit their lending portfolios for customers buying equities.

”We are not attempting to limit market growth but only to regulate it,” Central Bank Deputy Governor Dharma Dheerasinghe told Daily News Business yesterday.

The Deputy Governor’s remarks come in the context of stockbrokers expressing concerns over the limitations imposed in the lending market and with initial public offerings amounting to Rs 20 billion.

The Central Bank does not think that brokers need to be unhappy but it has been done as the bank does not want to inflate the system and the Central Bank has an obligation to safeguard the interests of the licensed banks who lend public funds, he said.

He said if the Central Bank did not impose the 50 percent restriction to banks to lend for IPOs, then all 30 banks would be exceeding the limits and share issues would be oversubscribed by 15 times.

Meanwhile, stockbrokers yesterday made some salient comments over the Central Bank decision to direct licensed banks to limit the lending portfolios to 5 percent for purchase of equities by their customers.

”Our stance has been that bringing such restrictions would curtail the level of activity of the market specially in the light of the Initial Public Offers valued at around Rs 20 billion which will be the total size of the issue sizes which will come in during the course of the year, Colombo Stockbrokers Association Chairman and Ceylinco Brokers Director and General Manager Srian Gurusinghe said.

”There will be plenty of IPOs which will be coming this year and the funding will be from the existing market. The market should have access to more funds and this is also an opportunity for banks also to make some returns on lucrative investments.

He said the stance of the brokers has been that it is the local high networth and retail investors who drove the market in the last two years and there have been very little inflows of foreign investment coming in.

source - www.dailynews.lk