ICRA Lanka projects May and June private sector credit to have significantly lost momentum

The economy has already shown deeper cracks from the business and job-crippling restrictions since the third week of April and the private sector credit became the latest casualty, as ICRA Lanka believes the momentum to have been severely affected during May and June, for which months the data is yet to be out. 

The first cracks were seen from the April private sector credit data, which showed a substantial slowdown to Rs.57.7 billion in April, almost half from Rs.112.2 billion in March, partly due to the holiday season.  

A month later, the Central Bank cut its private sector growth outlook for the entire year, as it observed the pace was weakening faster as it increasingly realised that the harsher and expansive restrictions at the time were taking a massive toll on the economic activities, which would erode the desire for private sector activity and thereby the funding needs. 

As a result, it cut its year-end private sector credit target in May to 12 percent, from the original 14 percent, although its original target was seen increasingly plausible, given the pace at which it was accelerating, leading up to the economic restrictions since April third week.

ICRA Lanka Limited, becoming the latest one to weigh in on the development, said the fresh restrictions might have thrown a wrench into private sector growth in May and June, after the slowdown in April. 

“With the advent of the third wave, it is likely that the momentum of the credit expansion in May might have been affected,” the rating agency said. 

“As a consequence of subdued economic activity level, the credit growth may not be able to maintain momentum in June,” it added. 

During the first four months, Sri Lanka’s licensed commercial banks gave Rs.275 billion in fresh credit to the private sector, riding on the booming economy prevailed through the third week of April, before the virus-controlling doctors recommended they needed harsher restrictions on broader economic activities and people’s lives to contain the virus.