Private credit surges past Rs.100 bn mark

Credit to the private sector witnessed a significant surge, surpassing the Rs.100 billion mark in December of the preceding year. 
This uptick signals a notable momentum in credit activity, aligning with the Central Bank’s anticipated efforts to expedite the ongoing nascent economic recovery.

According to official data released by Central Bank last week, the licensed commercial banks had increased their outstanding net credit to the private sector by a staggering Rs.102.6 billion in December 2023, extending the months-long growth in credit to its seventh consecutive month.
This however still translated to a 0.6 percent contraction from the level it stood a year ago. This indicates that the outstanding stock of credit given to the private sector by the banks hasn’t yet returned to levels before it started shrinking.

The economic crisis which was characterised with abnormally higher interest rates and weaker borrower profiles caused the banks to sharply pull back on the credit they extended to both individuals and businesses to minimise the toll on their fast deteriorating asset quality.

This caused the outstanding stock of private credit to shrink as bank balance sheets contracted as seen from their 2023 financial results. The growth and the pace of private sector credit is an important economic reading to gauge the direction of the economy and the sentiments of its actors – businesses and individuals. The increase in private sector credit shows that the economy’s confidence is returning, thanks to improvements in external and fiscal sectors, along with lower borrowing costs.
The Central Bank has cut its key interest rates by a total of 650 basis points since it set off to ease its ultra-tight monetary policy back in June last year.