Credit card spend jumps in July amid heightened forex concerns

Credit card spend by Sri Lankans bucked the two-month long contraction, swinging to a sharp increase in July, days after the country removed month long restrictions in June in what appeared to be a reflection of some semblance of economic normalcy which was short lived. 

According to data, the total outstanding credit card balance soared by Rs.3, 027 million in July to Rs.121.66 billion. 

The rise in July in fact only managed to restore the credit card balance to the level near its April highs when the five month long rising streak ceased and reversed in the following two months due to economic restrictions that went into effect to contain the virus spread. 

Unlike in a typical month, the July surge in card spend could not be entirely attributed to the corresponding surge in consumer spend as concerns mounted over the use of cards for high ticket size foreign purchases for commercial reasons in order to sidestep the foreign exchange rationing and vastly different foreign exchange rates charged on imports compared to the official rate. 

This prompted banks to limit certain foreign exchange transactions that took place via credit cards sparking concerns among people if they are barred from using their cards for foreign purchases. 

A month later in August, the Central Bank issued a statement reminding card users that, “current transactions of personal nature,” can happen sans limitations. 

While credit card spend is still not a good barometer for gauging the consumer spending dynamics in Sri Lanka due to its still vast population that doesn’t own credit cards, it provides a certain idea on consumer spending patterns specially on leisure related spending, spending on dining outs, healthcare related spending, consumer durable spending and upmarket retail. 

By the end of July, there were 1.94 million credit cards in active in Sri Lanka for an 8.5 million labour force.
During July, banks had sold 4,151 cards bringing the total number of cards issued in the first seven months in 2021 to 62,176. 

While the amount of transactions that shifted electronically are not reflected fully by the credit cards spend, there was an enormous shift in the use of payment applications via online and debit cards by a large swath of people in Sri Lanka as the pandemic pushed many who otherwise are less inclined for online transactions on digital payments platforms offered by the banks.