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Development Credit Department

Like many other Sri Lankan financial institutions, Commercial Bank draws on foreign and domestic development funds to offer credit at concessionary rates to small and medium enterprises (SMEs), agricultural businesses and microenterprises. Traditionally, NPA ratios are low in this line of business.

Agriculture and Microfinance Loans

The Bank offers 13 credit line products in this area, 04 of them self-funded. As with SME finance, many of these schemes (with the exception of the Bank’s own Microfinance and agriculture loan schemes) are either refinanced or interest subsidised by the Central Bank or other sources and carry various eligibility limitations.

The portfolios experienced significant growth in 2011 which was partly contributed by making loans available to farming communities and micro-scale entrepreneurs in the Northern and Eastern Provinces as they restart cultivation and business activities. The Bank also promoted credit lines by financing established companies that serve the agriculture and microfinance sectors.

Future Outlook

To help meet growth targets for these portfolios, the Bank has opened six Agriculture and Microfinance units and plans to open a further seven in the near future. Plans are in place to set up low cost small microfinance units, tie-up with microfinance agencies and explore the possibility of wholesale lending to reputed microfinance institutions during 2012.

Industrial Loans

Currently, the Bank draws on 05 sources of funding as well as its own capital resources to offer 06 lines of industrial-development credit.

Lower market rates and accelerated development activities across Sri Lanka increased overall credit

demand in 2011 - especially in the Northern and Eastern Provinces, which offer many post-war investment opportunities.

The Bank’s own Diribala credit line targets SMEs requiring longer repayment periods, as well as those ineligible for funding under other refinance schemes. Performance was satisfactory in 2011: a substantial sum of new advances was disbursed, and the interest rate was revised several times to meet customers’ needs.

Under the Small & Medium Enterprise Development Facility (SMEDeF) scheme, a limited amount of refinance funds were pre-allocated to selected Participating Credit Institutions (PCI). In order to accommodate facilities that did not receive financing, a Bank-funded SMI scheme was introduced at a concessionary interest rate. In total, 183 facilities amounting to Rs. 2.0 Bn. were considered during the year.

Financing made available to SMEs in the Northern and Eastern Provinces under the KfW Line of Credit enabled the Bank to serve existing and new customers at concessionary terms. New facilities amounting to Rs. 447 Mn. were considered for SMEs under the KfW Scheme, which enabled the Bank to secure a 70% market share, the highest among all PCIs.

The first stage of a Development Credit Department automation initiative was completed during 2011, reducing manual paperwork and eliminating manual filing and maintenance of ledgers. Data retrieval is now possible through the ICBS main server.

Commercial Bank launched an aggressive marketing and promotional campaign in the first quarter of 2011 to increase awareness of its unique development lending products and to increase market share. The successful campaign increased value of the portfolio to Rs. 16.14 Bn. - an increase of 30% or Rs. 3,744 Mn. over 2010.

The following table summarises the performance of the Development Credit Department for the year under review.

Portfolio Growth

 

Future Outlook

Another aggressive marketing and promotional campaign will be launched in 2012 to raise awareness among entrepreneurs of the Bank’s development lending products. Staff training and skills development programmes will continue throughout the year.

For SME sector, plans are in place to simplify the appraisal and approval process of Bank-funded schemes, repackage SME products and promote entrepreneurship and management skills with reputed organisations.

Steps have already been taken to automate the credit approval process and to improve the delivery of facilitates in the year 2012.