Private credit continues to grow unabated in Nov.

• Grows by Rs.41.1bn, continuing the growth for 4th consecutive month
• But marks a decline from Rs.59bn in Oct. as biz entered holiday season 
• For January-November 2020 period, banks had lent Rs.299.4bn
• Acceleration in private credit largely expected this year

Credit to the private sector continued to grow in November defying pandemic related restrictions, but it briefly lost some momentum as businesses entered the year-end holiday season.

The total credit extended to the private sector— represented by individuals and companies—by licensed commercial banks grew by Rs.41.4 billion in November continuing the growth for the fourth consecutive month set forth in August. 

November private credit marked a decline from Rs.59 billion in October. However, it logged a 6.2 percent increase from the same month in 2019.

For the January-November 2020 period, banks had lent Rs.299.4 billion, bringing the total outstanding private sector credit in the licensed commercial banking sector to Rs.6.055 trillion. 
Fitch Ratings in December projected an acceleration in private sector credit in Sri Lanka this year, which could aid the economic growth and blunt the effects of the sour loans. 

Historically low interest rates, lending bias by banks and the policy bias towards enterprises provide an additional tailwind for loans to flow into the economy’s real sector. 

The Monetary Board is still of the view that earlier actions have more room to run their course while the excess liquidity in the overnight money market, which is currently at around Rs.267 billion, could be passed down to the market via lending to the private sector. 

“The Board, having noted the reduction in overall market lending rates so far during the year, stressed the need for a continued downward adjustment in lending rates to boost economic growth in the absence of demand driven inflationary pressures, particularly considering the significant levels of excess liquidity prevailing in the domestic money market,” the Monetary Board said in late November. 

With the caps on certain lending products, most recent one being the mortgage-backed housing loans, and the lending targets waiting to be enforced in due course, could further accelerate private credit, which slowed down due to the virus related lockdowns.