Credit growth expected to pick up in second half: Acuity Stockbrokers

• Says economic recovery expected in 2H could revive demand for private credit
• Lockdown-styled restriction since mid-April killed private credit momentum in 1Q
• Licensed commercial banks extended loans worth Rs.112bn during April and May

The banking sector credit growth could start to pick up from the second half of this year (2H21) after a setback in the 2Q21 due to lockdown-like restrictions, which crippled most business and consumer activity for over two months, according to Acuity Stockbrokers Research. 

The banking sector loan growth set off to a robust growth during the first three months of 2021 as both business and consumer activities reinvigorated with the easing of virus related restrictions, positive business and consumer sentiments and the policy support received, both from the Central Bank and the government by way of lower interest rates, liquidity and lower taxes. 

However, the restrictions re-imposed from the third week of April killed the positive spirits as large swathes of the economy became non-operational and thereby the momentum, which stayed for bank credit lost by a half, the data showed. 

“Overall, for banking industry, we expect in FY21 H2, the credit growth would pick up due to economic recovery (although delayed by few months due to COVID-19 third wave),” said Acuity Stockbrokers Research in a quarterly earnings update, which accompanied a forward-looking view on each sector. 

The banking sector, as typical, led the listed company earnings during the first three months of 2021 helping the overall earnings to eclipse Rs.100 billion for the first time in the history of quarterly earnings. 

The banking sector reported earnings of Rs.24.9 billion in the January-March quarter, up 70 percent from the same quarter in 2020 and up 33 percent from the most immediate quarter ended in December on robust growth in loans, lower impairment provisions and slight margin improvement due to liability re-pricing under lower rates. 

The private sector credit data showed that licensed commercial banks had extended loans worth Rs.112 billion during April and May with June expected to be weaker due to restrictions which remained for the most part of that month.

During the first three months licensed commercial banks saw their monthly disbursements rising consistently from Rs.25 billion to Rs.79 billion to Rs.112 billion from January through March before halving to Rs.57 billion and Rs.55 billion in April and May as it lost momentum due to virus related economic restrictions. 

“Overall, for banking industry, we expect in FY21 H2, the credit growth would pick up due to economic recovery (although delayed by few months due to COVID-19 third wave),” said Acuity Stockbrokers Research in a quarterly earnings update, which accompanied a forward-looking view on each sector. 

The banking sector, as typical, led the listed company earnings during the first three months of 2021 helping the overall earnings to eclipse Rs.100 billion for the first time in the history of quarterly earnings. 

The banking sector reported earnings of Rs.24.9 billion in the January-March quarter, up 70 percent from the same quarter in 2020 and up 33 percent from the most immediate quarter ended in December on robust growth in loans, lower impairment provisions and slight margin improvement due to liability re-pricing under lower rates. 

The private sector credit data showed that licensed commercial banks had extended loans worth Rs.112 billion during April and May with June expected to be weaker due to restrictions which remained for the most part of that month.

During the first three months licensed commercial banks saw their monthly disbursements rising consistently from Rs.25 billion to Rs.79 billion to Rs.112 billion from January through March before halving to Rs.57 billion and Rs.55 billion in April and May as it lost momentum due to virus related economic restrictions.