22 July 2021 03:25 am Views - 217
Despite the recent moderation seen in the growth of private credit, ICRA Lanka expressed optimism that it might have gathered pace after the reopening of the economy from the final week of June, rekindling hopes that the overall growth momentum in the economy would pick up from the depths it fell to during the second quarter, due to the virus-related restrictions.
Sri Lanka’s private sector credit growth, one of the mostly used gauges of economic vibrancy, set off to a robust growth trajectory during the first three months of the year but the monthly net disbursements fell by a half from the March highs in the subsequent months, raising concerns of the ability to meet the year-end target set at the beginning of the year.
ICRA Lanka expects June private credit may have further moderated after the deceleration in credit in April and May.
“The reserve money grew stronger in the last two weeks of June likely due to expansion in the money in circulation. Therefore, we expect the moderation in private credit to have continued through June as well,” the rating agency said in its regular economic assessment.
In April and May, Sri Lanka’s licensed commercial banks expanded their total outstanding private sector credit by Rs.57.7 billion and Rs.55.6 billion, respectively, compared to Rs.112.2 billion in March and ended the five-month run with a total of Rs.330.6 billion.
However, the rating agency remains upbeat about the July performance with the gradual reopening of the economy.
“The vaccination rollout is likely to give a boost to the business sentiment and the consumer confidence and hence private credit in July may expand slightly faster on a month-on-month basis than in June,” ICRA Lanka said.
The historically low lending rates act as a catalyst for the recent pick up in the credit to the private sector, making the conditions best for using borrowed money for business expansion and consumption alike.
The Central Bank also a fortnight ago expressed optimism of the private credit trajectory so far, which broadly defied the pandemic-induced disruptions and indicated of Rs.800 billion in “additional” credit to the private sector in 2021. The economy is also poised to grow by between 4.5 and 5.0 percent during 2021, largely on a lower base in 2020, after a brief setback in the second quarter. Commenting on the price pressures, a key potential destabilising factor of the economic gains, ICRA Lanka expects a “moderate level of inflation” in July, with the full effects of the fuel price increase reverberating elsewhere in the economy.
“The current vaccination drive is likely to speed up the recovery in the real sector. Therefore, higher economic activity levels are expected for July/August,” the rating agency added.