Credit card balance jumps with ending of restrictions on movement

The cumulative outstanding credit card balance jumped the most in recent months in October, signalling faster recovery in consumer spending after people started venturing out, with the end of six-week long restrictions on movement on October 1.  The behaviour in credit card balance, a proxy for consumer spending, has by and large corresponded with the virus-related restrictions, as the reimposition of such restrictions has narrowed or contracted such balances while their ending has led to faster expansion.

According to the latest data available, the total outstanding credit card balance had climbed Rs.3.4 billion by the end of October, the most in a single month in recent times, bringing the total outstanding credit card balance to Rs.124.22 billion. 

In comparison to the status at the end of December in 2020, this marked a Rs.6.96 billion increase in the 10 months through October 2021.  

This accounted for a fairly insignificant amount of the nearly Rs.690 billion in total private sector credit granted during the same period. 

While the credit card balances started rising from the tail end of last year, after the gradual reopening of the economy and the fillip it received from the reduced interest rates by 10 percent to 18 percent, the restrictions reimposed from around May this year had a bearing on the growth. 

The salaried employees, who mostly own a credit card and spend mostly on travelling, leisure, dining and other high-ticket purchases, had less or no options to do so, due to the months-long restrictions and they spend their earnings mostly on essentials when the outdoor and recreational aspects of their lives had to be cut down, due to the virus fears.   However, the repeated shutting down and reopening of economies, due to the sporadic virus outbreaks, have strained the supply chains and the situation gets worse when these strained supply chains have to meet the pent-up demand, which comes with the economic reopenings, causing painful inflation.

Meanwhile, the data also showed that Sri Lanka has little fewer than 1.9 million credit cards in active mode. 
Sri Lanka has a labour force of 8.4 million but the formal sector is less than 50 percent, making it difficult for the rest to apply for a card.