Home » New regulations for pawning come up soon amidst gold credit hike

New regulations for pawning come up soon amidst gold credit hike

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Sri Lanka Finance Ministry is reportedly preparing to introduce new regulations to enable those pawning their gold to obtain the maximum value.

A high official from the Finance Ministry said that a circular regarding this issue is being prepared now.

It is revealed that the government is preparing to provide certain guarantees against the risks to banks and financial institutions in paying the maximum amount to those pawning their gold.

When the gold prices in the world market fell recently banks and financial institutions in Sri Lanka which had provided more loans against gold faced grave risks.

Sri Lanka pawning (gold-backed loans) credit from the banking system had grown rapidly as most of the middle class families have pawned their gold jewelry to meet their day to days due to severe economic difficulties in high cost of living conditions.

Owing to the ongoing economic crisis, gold worth nearly Rs. 200 billion has been pawned to various financial institutions in the country, a survey has revealed.

Accordingly, as per a survey conducted by the University of Peradeniya’s Department of Economics and Statistical Studies, it was revealed that gold worth over Rs. 193 billion has been pawned within the first 10 months of 2022.

The Department’s Prof. Wasantha Athukorala revealed that a majority of those who had pawned their gold belonged to the middle class, adding the two most common uses of the money received was for the education of their children and agricultural activities.

Prof. Athukorala further noted, however, that people are more likely to obtain the service from privatized pawning centres now, as they provide higher rates. The survey was conducted on a total of 13 licensed commercial banks and 10 pawning centres

The recent reversal in gold’s fortunes could prove painful for Sri Lankan banks, says a report by a leading rating agency

As gold prices soared over the past few years, Sri Lanka’s banks substantially expanded their pawning loans (gold-backed loans).

The competitive nature and need for a rapid turnaround in the pawning business could compromise the ability of banks to perform thorough credit assessment of borrowers, including checking their credit histories recorded with the Credit Information Bureau of Sri Lanka.

Banks’ pawning loans grew at a steep average annual rate of about 50 per cent over the past three years, compared with average annual loan growth of 25 per cent for the banking industry.

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