20 July 2020 09:19 am
Sri Lankans appeared to have spent less on their credit cards as they had limited opportunities to spend while they sheltered-in-place for almost two months under COVID-19 lockdowns.
According to the latest Central Bank data, the total outstanding balance of all active credit cards fell by Rs.2.3 billion to Rs.119.2 billion in the first four months up to
end-April.
The outstanding balance fell by a steeper Rs.2.7 billion in May alone to Rs.116.5 billion, reflecting that cardholders had significantly cut down on their credit card debt.
This phenomenon could be explained by people doing transactions mostly in cash, including electronic cash, as there were extremely limited spending opportunities, mostly restricted to few essentials, as they increased their savings in banks.
Credit cards are generally offered to people with fixed employment as the banks consider salaried employees are a less risky segment.
The limited spending opportunities may have given cardholders the room to pay down part their credit card debt, speeding the decline in the
outstanding balances.
Meanwhile, the banks also gave differed time for cardholders to settle their dues and waived off penal charges to ride their clients the tough time brought on by
the pandemic.
The overall credit card balance is also an indication how deep the consumer spending has slumped due to the coronavirus-induced
economic shutdown.
But the fiscal stimulus came by way of handouts, and the Central Bank’s monetary stimulus helped to maintain the money supply at healthy levels even during the lockdowns.
Meanwhile, the banks ramped up their discounts, promotions and easy payment schemes since June to recoup what they had lost in their portfolios by inducing people to swipe their credit cards as restrictions on mobility were lifted. As a result, occupancy at some of the renowned resort chains reached 50 to 60 percent levels due to the weekend trippers who were making use of the discounted credit card offers.
This enabled hotels and resorts to re-employ part of their staff who otherwise remain unemployed for nearly three months and to reactivate a virtuous economic cycle. As interest rates have fallen to historically low levels, people will be encouraged to use more of their cards on wide range of spends, supporting economic recovery. By the end of May, Sri Lanka had 1.82 million active credit cards, slightly down from 1.83 million at the beginning of the year.