SL’s banks give Rs.739bn in private sector credit in 2018 defying tight policies

Sri Lanka’s private sector credit or the credit extended to private individuals and business enterprises by the banking sector rose at a healthier pace during 2018, defying the policies broadly tilted towards the tightening side.

According to the Central Bank data, Sri Lanka’s banks in 2018 gave a high Rs.739 billion in credit to private individuals and businesses, which in return used them for consumption and investment activities.

In December, the figure came in at Rs.52 billion, slightly below the monthly average of Rs.62 billion. 

The total private sector credit granted during 2018 was a 15.3 percent increase from the total private sector credit outstanding in the banking sector, at end-2017 and an uptick from the 15.2 percent growth in that year, although it translated into a whopping Rs.121 billion increase in absolute terms.

Sri Lanka’s twin policies - monetary and fiscal policies - remained consistently tighter throughout 2018 with the increase in the policy rates towards the latter part of the year and several macro-prudential measures in the form of lending restrictions on certain asset classes such as vehicles coming in.

The new Inland Revenue Act too came into effect since April 2018 with a host of new and higher taxes and fewer exemptions than its predecessor.

The constitutional crisis triggered during the final quarter too slowed down the economic activities keeping the consumers and the investors at bay for more than six weeks.

Sri Lanka’s private sector credit growth is barely in line with the expectations of the authorities for the year and did not fuel inflation. 

However, these still significant amount of credit granted in 2018 failed to stimulate the economy, which is projected to have grown by 3.2 percent, not much higher than the 3.1 percent growth in the previous year. 

Some economists say Sri Lanka’s economic growth should have been higher than what is reported and there could be data capturing and measurement deficiencies at the Census and Statistics Department. 

Sri Lanka also appears to be having a sizable black economy, which may never get counted by the statistics office data gathering. 

It is said that the significant decline in the circulation of drugs in recent months is also a reason for the slowdown in the vehicle market as the drug money trickles down to the economy slower than before after the law enforcement authorities put the drug-nabbing campaign into a higher gear. 

Meanwhile, the net credit to the government by the banking sector has risen by 16 percent or Rs.346 billion during 2018, while the credit to the public corporations have grown by 47 percent or Rs.241 billion.