Thursday, May 2nd 03:23 PM IST

Sri Lanka banks hit hard by recent Gold plunge

# Sri Lanka gold  # WGC  # Gold plunge  

Economists fear that customers may be attracted towards purchasing fresh stocks of gold at the reduced price, as against retrieving their gold articles, pawned previously to banks and financial institutions.

COLOMBO(BullionStreet): Days after Sri Lanka central bank governor said falling prices are an opportunity for the country to raise gold reserves, economic analysts warned that the recent drop would inevitably have an adverse impact on this country's banking sector.

They said some banks may even face collapse, if this trend continues further. A similar situation was reported in the US, when the real estate prices declined there, they further pointed out.

During the recent gold plunge, the value of a gold sovereign dropped from Rs 40,000 to Rs 30,000 in Sri Lanka.

Economists fear that customers may be attracted towards purchasing fresh stocks of gold at the reduced price, as against retrieving their gold articles, pawned previously to banks and financial institutions.

In the event banks decide to sell their pawned gold articles in the current environment, the resultant glut could lead to a further dip in the price of gold, further compounding the issue, they said.

Certain banks have already announced they would not accept gold as security for loans and advances.

Earlier, Central Bank of Sri Lanka Governor Ajith Nivard Cabraal said falling prices are an opportunity for nations to raise gold reserves and Sri Lanka will favorably examine buying more.

However, some analysts said there is increased buying interest especially among prospective wedding couples following the end of a traditional New Year.

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