ICRA Lanka says private credit growth could slowdown in January

Rating agency ICRA Lanka Limited said the growth in the private sector credit could slowdown in January although Fitch Ratings and other economic analysts opine otherwise. 

Sri Lanka’s private sector credit accelerated in December 2020 after some slowdown in November due to fresh lockdowns since the credit expansion that began in August. 

In December, licensed commercial banks gave Rs.76.7 billion in net credit to private individuals and firms, up from Rs.41.4 billion in November, as the economy began to pick up pace after a brief set back in October and November due to the second COVID-19 wave.

“Bank credit to private sector continued to expand in December. However, we expect credit to slow down in January,” said ICRA Lanka in their Monthly Economic Update released last week. 

Fitch Ratings in a December report said private sector credit would see acceleration while the Central Bank in January put the private sector credit growth forecast for 2021 at 14 percent, more than twice the 6.5 percent growth recorded in 2020. 

With December credit, licensed commercial banks have extended a total of Rs.374 billion as private sector credit in 2020, much higher than what was given out in 2019. 

Private sector credit growth is a key gauge, which determines the dynamism of an economy and its various private actors. 

It wasn’t clear why ICRA Lanka gave a dour outlook for credit in January when the economy was all set to take off from the pandemic-triggered challenges in 2020. 

ICRA Lanka had taken a pragmatic view of Central Bank liquidity, opining that such a scenario was required to support the economy until it got back on its feet.

ICRA Lanka Head of Research Lalinda Sugathadasa was of the view that fiscal stimulus by way lower tax rates were necessary stimuli for the quick revival of businesses, especially during a pandemic. On the contrary, anti-central bankers were claiming that printed money would spur inflation and weigh on currency, soon forcing authorities to reverse course on interest rates and taxes. 

As of now, the headline inflation is hovering around the 4-6 percent range and the lid on imports is likely to continue through the year, until inflows recover to adequate levels.