Growth in private sector credit persists through September

Outstanding credit to private sector expands by Rs.89bn, bringing 9 months tally to Rs.430bn

The banks kept their lending spigots wide open as they grew more confident about the economy while the rates continued to come down, spurring more demand for credit as already seen from the interim results of the banks which opened their books for the September quarter.

The total outstanding credit to private businesses and the individuals expanded by Rs.88.9 billion in September 2024, translating to a satisfactory 8.9 percent growth in credit from a year ago.

While this was a slight acceleration from the 8.7 percent growth seen through August 2024, on nominal terms, the amount of credit that were disbursed showed some deceleration from the levels in August.

In August, the banks were seen shelling out large amounts of credit, helping to expand outstanding private sector credit by Rs.135.2 billion, which came in at more than doubling from the levels seen in July.

The few balance sheets of the banks which reported their September quarter results so far in fact reflected this phenomenon which showed robust growth in their loan books.

Unlike a few months ago, the credit is also flowing to broader segments of the economy, helping broad-based growth in the economy.

Banks also signalled more optimism over the future trajectory of the economy as seen from nearly every economic data that came out recently which is also reflected in the cash flows of the clients that they get to meet every day.

This makes them more confident to lend to these small to medium sized businesses and individuals who are increasingly showing more strength than they were about a year ago.

Reflecting this confidence, the banks provided only a fraction of what they did for potential loan losses in the September quarter and they see their clients who under enormous strain of higher rates and weak cash flows regaining strength back again, helping them to service their facilities with the banks.

The non-performing loans also were easing as people resumed servicing their loans while the new loans also grew.

The September deceleration from the August levels however could be attributed to some wait-and-see approach practiced by the borrowers in the run up to the Presidential elections.

Thus, the overall direction offers telltale signs of the continuous growth in credit to the private sector which will in turn power the growth of the economic output and thereby the incomes.

The final monetary policy meeting for the year is scheduled for the end of the month in which there is a possibility for the Central Bank to deliver another rate cut to spur further growth in the economy.