October private credit expands by Rs.74bn taking total to Rs.505bn

Sri Lanka’s commercial banks saw their total outstanding credit to the private sector expanding unabated by another Rs. 74.3 billion in October 2024. 

This reflects the increasing willingness of banks to lend and also the appetite for new borrowings from wider segments of the economy as the interest rates are declining while the economy grows.

Despite showing some softening from the Rs.88.9 billion growth seen in September 2024, this translated into a 9.3 percent growth on a year-on-year basis, accelerating from 8.9 percent growth seen through September 2024.
Further, the October disbursements also took the first ten months credit to Rs.504.5 billion. With the pace at which it has been taking place as of late, the remaining two months would also see some robust growth in credit to the private sector.

The Central Bank eased monetary policy last week effectively by 50 basis points by setting what they call the Overnight Policy Rate at 8.00 percent to further support the economy as the price pressures remain muted.
The softening seen in the October credit compared to the last two months may have also contributed to last week’s monetary easing which added further downward pressure to lending rates.

The banks which reported their September quarter results last month also saw that bulk of the growth in loans had come in the third quarter which also dovetails with the acceleration seen in private sector credit as of late.
However their margins came under pressure due to declining rates but the continuous growth in credit would help them to generate higher bottom-lines.

They were also seen providing substantially lower provisions for possible problematic loans in the September quarter as they grew increasingly confident about the economic recovery and also their borrowers’ ability to service their loans.

The growth in credit which was at the beginning of the cycle concentrated into a few sectors now has broadened across all major economic sectors from agriculture and fishing to industry to services to personal loans and advances.

October also marked the sixth consecutive month of expansion in credit after April’s dip due to extended holidays.