Banks’ credit to private sector shot up in December in year-end pop

• An estimated Rs.193.2bn in fresh credit granted by commercial banks in final month of 2024 

Private credit ended last year with an eye-popping Rs. 1,932.2 billion in fresh credit disbursed by commercial banks—an exceptional amount not seen in many years for a single month, even before the crisis that brought the credit market to a near halt roughly three years ago.

The pace at which it has grown raised many eyebrows, but the Central Bank attributed it to heightened demand, which is typically seen in the final month of every year before slowing somewhat in January.

A similar pattern was observed between December 2023 and January 2024, when private credit, which grew by Rs. 102.6 billion in December 2023, fell into negative growth of Rs. 52.2 billion the following month, as credit taken, mostly by importers for seasonal stock build-up, was subsequently settled.

However, this time could be different, as banks are no longer skittish about the economy’s trajectory and are more willing to increase lending than they were a year ago. They now have greater predictability and certainty over many factors that remained unclear last year.

That said, authorities have not ruled out possible intervention should the trend persist, as the pace of growth in December 2024 does not appear sustainable.

The December surge, which follows Rs. 96.6 billion in November, brought total outstanding private sector credit growth for the year to a striking Rs. 790.0 billion.

This translated into year-on-year growth of 10.7 percent, the first time in many years credit growth has returned to double digits.

Private credit is an important barometer of economic health, and the latest figures suggest renewed optimism among economic actors, both corporates and individuals.

However, it is equally important to assess where most of this credit is directed to ensure a balanced mix between investment and consumption.

During the last credit super-cycle in 2021, the bulk of credit ended up in the hands of consumers, partly contributing to the economic troubles of that year and the following one.