- Feb. private credit grew by Rs.25.3bn after months of hiatus
- Private credit grew only by 4.5% in the whole of 2019
Sri Lanka’s credit to the private sector began picking up in February after months of hiatus and then met with new coronavirus, which sent everything packing back to
Banking sector credit to the private sector, which almost stay put in January grew by Rs.25.3 billion in February as lower borrowing costs were gradually infiltrating to the real economy as businesses and people were acting in a new found optimism after the presidential election in November 2019.
Sri Lanka’s private sector credit stubbornly stayed low for many months and it grew only 4.5 percent in the whole of 2019.
Sound growth in private sector credit is a sign of flourishing economic activity in an economy.
However, the outlook rapidly turned sour since half way into March as COVID-19 found way into Sri Lanka forcing businesses to shutter and employees to self isolate at homes as lockdowns went in to effect to slowdown its spread.
Banking sector credit which appeared to grow close to 15 percent in 2020 just two months ago is now faced with the grim realities of a pandemic and achieving even half of that now seems impossible. Recently, First Capital Research estimated the banking sector credit to fall to 6.0 percent for 2020 provided the economy grows 2.4 percent, its only optimistic scenario.
In January they projected the credit to grow by 14 percent, in line with the Central Bank’s 12 to 13 percent projected growth for the year.
The research house said it significantly cut down projections of credit growth due to the broader moratoriums and the weak economic growth, which naturally tamps down the demand for new credit growth.
“Lack of growth plus moratoriums, may avert banks from expanding lending,” First Capital said.
Under two other scenarios, First Capital projected the private sector credit to shrink by 1.5 percent and 9.0 percent should the economy plunge in to a recession.
Meanwhile, net credit to the government from the banking system increased by Rs.41.9 billion in February 2020 and the credit to public corporations increased by
The money supply measured by broad money (M2b) expanded by 8.4 percent, on a year-on-year basis in February 2020, up from 8.3 percent in January and 7.0 percent in
Since January through April, the Monetary Board slashed policy rates by 100 basis points in three occasions and relaxed capital and liquidity standards for banks and