Sri Lanka’s household indebtedness on the rise

The record low interest rates that prevailed until recently may have helped many to overcome their financial difficulties and enjoy better living standards in the short-term, but this has fuelled Sri Lanka’s household debt to reach record highs, data showed. 

Since 2015, a larger section of Sri Lankans have been living beyond their means until the Central Bank intervened through multiple interest rate increases to temporarily curb the borrowing spree. 
But this may have solved only one side of the issue by discouraging any new borrowers, as this has certainly put some of the existing borrowers in jeopardy as their loan installments have fast risen.
The data from the Central Bank showed that every Sri Lankan household had become indebted by at least Rs.140, 000 during the two years from 2015 to 2016. 

The Central Bank’s intervention was required when the situation was going out of control due to much faster increase in personal borrowings during the first quarter of 2017. 

The total housing and consumption loans per household, which stood at a little under Rs.250,000 by the end of 2014, rose to around Rs.375,000 by the end of 2016, stoking fears over the fast rising indebtedness of households. 

During the first quarter of 2017 Sri Lanka’s banking sector disbursed a record high Rs.73 billion in personal loans, barring housing loans, pawning and credit cards. 

The banking sector granted Rs. 129 billion worth of personal loans during the whole of 2016. 
It was only recently that the Central Bank Governor Dr. Indrajith Coomaraswamy went on record saying that household debt was fast approaching unsustainable levels. 

“The indebtedness of households has been increased to the point where in our view there were grounds to kind of put some sand in the wheels to slow that down a little bit because there is really a very sharp increase in personal loans”, Dr. Coomaraswamy told at a recent media briefing.  From January 2014 to March 2017, Sri Lanka’s banking sector granted a total of Rs.463 billion in new personal loans. 

This accounts for 20 percent of the total new loans granted during the same period.