Credit card spend up in August, but balance per card below pre-pandemic level

• Consumer spending could take months to return to pre-crisis levels as soaring prices could dampen recovery 

Although outstanding credit balances advanced only a little in August, robust demand prevailed for private sector credit, which also encompassed the spending made via credit cards, the data showed. 

This is after a strong rebound seen in the outstanding credit card balances in July reflecting the short-lived spending boom after the economy remained opened for one whole month before the lockdowns were re-imposed in August. 

According to the data, the outstanding credit card balance in the system rose by Rs.134 million in August from July to Rs.121.79 billion after adding over Rs.3.0 billion in new balances in July after contracting for two consecutive months in the preceding two months. 

The movements in outstanding credit card balance typically provides a proxy for consumer spending, although it remains a distance gauge in Sri Lanka due to less number of people carrying credit cards in their wallets. 

Currently there are only 1.95 million cards for the workforce of 8.4 million, reflecting the vast potential available for card issuers and banks to tap into. 

However, online transactions rose at an exponential speed during the pandemic as people subscribed for digital payment platforms linked to their personal and business accounts, which do not necessarily require a credit card. 
Meanwhile, ICRA Lanka Limited in a recent analysis carried out on the average card balance as part of their study on the overall consumer spending observed that the latter still remains below its pre-pandemic levels, indicating that the consumer demand hasn’t yet returned to its pre crisis peak.

“A proxy indicator for consumer spending, average balance per credit card is still below the pre-crisis level. We expect the demand for services to gradually pick up over the course of the next few months,” ICRA Lanka said. 
According to the data analysed, a card holder is carrying an average balance of little under Rs.63,000 by June this year, compared to a little over Rs.65,000 in February last year before the virus struck the country. 

“It may take months to see full recovery in consumer spending”, the rating agency added. 

ICRA Lanka also said lifting of restrictions does not necessarily mean the faster rebound in consumer spending as there are several other factors such as the soaring inflation working in tandem to make that happen. 

“Apart from willingness-to-spend, ability-to-spend will also determine how fast consumer spending is going to rebound.

Private sector wages decelerated initially as employers were struggling to stay afloat. Latest data show private wages grew on average over 7 percent a month (Y/Y) from May to July this year, but as the base effect wore off, and it will probably moderate. Therefore, consumer spending is expected to be subdued in the medium term,” ICRA Lanka added.