Bank credit accelerates in August despite tight market conditions

The growth in bank credit accelerated in August despite the tight credit and money conditions and rising non-performing loans in the 
banking sector. 

According to the latest data by the Central Bank, Sri Lankan banks have granted a total credit of Rs.98 billion to the private sector, government and state-owned enterprises (SOEs) during August, up from Rs.86 billion in July.  

The year-on-year (YoY) growth in credit accelerated to 16.1 percent in August, from 15.6 percent growth recorded in the month before.  

With the August numbers coming in, Sri Lankan banks in total have granted new loans worth of Rs.700 billion during the first eight months of this year, a growth of 10.9 percent, compared to Rs.524.9 billion reported for the first eight months of 2018.

Out of these new loans, the rescheduled loans showed an accelerated growth since the beginning of 2018 as the banks were seen fighting to tame an increasing non-performing loan base. 

The banking sector non-performing loans rose a three-year high to 3.4 percent by end-July.

Meanwhile, credit to the private sector, for which data is available only up to July, showed a moderation demonstrating that private individuals and firms have deferred borrowing in response to higher rates and weaker consumer and investment sentiments. 

Credit to the private sector increased by Rs.46.5 billion in July, compared to Rs.82.6 billion in June, a growth of 14.7 percent, against 14.9 percent in June.

The Central Bank envisages a credit growth of Rs.648 billion this year with a YoY increase of 13-14 percent.

If July’s private credit is an indication of the credit figure that will follow in August, it is a sign that the government and SOEs are borrowing heavily from the banking sector. 

Yesterday Mirror Business reported how the cash-strapped Treasury has failed to settle contracts running up to Rs.6.0 billion for the housing projects completed and handed over by the construction major, MTD Walkers PLC. 

The Monetary Board is widely expected to raise its benchmark interest rates today to stem credit growth, crashing rupee and foreign outflows from the government securities.