Credit card spending gathers momentum

• Outstanding credit card balance up by Rs.1.6bn in June to Rs.118bn
• Sri Lanka had 1.83mn active cards as end-June

Credit card spending, a gauge for consumer spending of an economy, showed a robust increase in June, in a sign that the economic activities are gaining momentum faster than expected after the coronavirus sapped consumer spending, as people were forced to remain indoors for nearly two months.

The outstanding credit card balance, a close indicator of spending through credit cards, rose by a significant Rs.1.6 billion in June alone, to Rs.118.1 billion, perhaps marking one of the strongest monthly gains in recent months. 

The news could spell some relief to banks, which were scrambling to make some headway in their lending growth in what could be termed as a lost quarter ended June 30, 2020. 

Seylan Bank, which reported its June quarter results last week, being the first licensed commercial bank to do so, had its credit card portfolio shrunk to Rs.6.4 billion, from Rs.6.8 billion. 
Meanwhile, Union Bank of Colombo PLC, fairly a recent entrant to the card space and was riding mostly on the cards as of late, had its card balance remained virtually unchanged during its June quarter, from the previous quarter.

Banks have also become aggressive in their promotion of credit card offers and discounts, to lure customers into swiping more of their cards.

Banks are offering attractive discounts to cardholders on their holidays and vacations, with Sri Lankan hotels and resorts reopening after the lockdowns. 

That collaboration between the banks and hotels has sparked a sudden demand for these establishments as it wooed a large swath of weekend trippers into them, in certain cases increasing the occupancy level over 70 percent. 

While the credit card balances clawed back some lost amount in recent months, caused by the pandemic, the outstanding amount still remains about Rs.3.4 billion short of the year-end balance of Rs.121.5 billion. 

The outstanding credit card balance recorded one of its steepest monthly declines in May, with a Rs.2.7 billion slump. 

Consumer spending is a strong indicator to measure the pace of the economy recovering, as consumption accounts for more than 70 percent of the Sri Lankan economy. 

Although credit card spending is often used as an indicator of the consumer spending, it also has some limitations as there are only 1.83 million active cards as of end-June, up from 1.82 million in May, still a fraction of the total active labour force in the country.