The banking sector’s net interest margin, the difference between interest earned and interest expended as a percentage of average assets, stood at 3.7 percent in 1998, declined to 3.2 percent in 2001 and grew to 4.6 percent in 2009, Central Bank Deputy Governor P.D.J Fernando told a recent forum.
"During this period, the operating costs to total assets have gone down gradually but not drastically as one would have expected due to the introduction of technology, " Fernando said at the Annul General Meeting of the Clearing Association of Bankers.
"Yet the question remains as to how far the customers have benefited from this increase in income of banks. I would like to say that very little of the benefits earned by the banks in today’s liberalized environment have been passed on to customers. There is enough evidence to show that the cost of small transactions has not decreased. Unless low value transactions are cost affectively done, it is not going to impact efficiency drastically," he said.
However, as regards to the actual measurement of transaction costs, there were no studies done and he urged the Clearing Association to take the lead in this regard.
"The Clearing Association of Bankers was now in the process of doing various studies to identify the regular basis of understanding the cost of transactions for small and retail customers, which was a commendable thing," he said.
Fernando said the operations of the banking sector should be geared to supply credit to a level of Rs three trillion or more, compared to Rs 1.3 trillion at present, in order to sustain the growth momentum beyond 2015.
He said that Sri Lanka’s economy was expected to grow by a steady annual rate of 7-8 percent in the medium term, along with a relatively low interest rate regime and low inflation.
source - www.island.lk
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