Banks give Rs.227bn in fresh credit in August

Credit to the private sector soared in August at the fastest pace the country has ever seen as the lower interest rates and a solid economic expansion are pulling a lot more credit to power the consumption and investments in the country.  

According to the latest data available, licensed commercial banks in Sri Lanka expanded their total outstanding credit to the private sector by a mammoth Rs. 226.8 billion in August, the most for any month in any year.

The August expansion in the private sector credit brought the total credit extended in the first 10-months of the year to a huge Rs. 1,128 billion.

This translated into a robust 20.5 percent growth from a year ago.

Growth in the private sector credit by the banking sector is a close barometer for the ongoing health of the economy, the business and the household sentiments and also the willingness by the banks to lend.

July and August growth in private sector credit, which came atop Rs.200.0 billion offered a good visibility over the growth in the banks in the three months ended in September, who are going to report their results for their third quarter in a couple of weeks.

This hence provides a bellwether for the banking sector performance for the quarter which is   widely expected to be far better than in the previous quarters.

The banks in Sri Lanka entered into the current credit super-cycle from around the second half of 2023 in tandem with the Central Bank starting to relax the monetary policy, bringing the lending rates down.

The decline in the lending rates happened much faster in 2024 and thus far in 2025 as the monetary policy transmission quickened than before.

The banks too entered the current credit cycle hungry, very much for the growth which they had to forego in both 2022 and most of 2023.

The Central Bank, when asked about the current pace of growth in credit expressed they are less concerned as the inflation remained well anchored at the 5.0 percent medium term target.

The rapid pace of growth in credit is also seen in the other high frequency indicators as these monies have been put to use as seen from the manufacturing, services and construction sector purchasing managers’ indices and also the economic output which expanded by a robust 4.8 percent in the first half.

The Central Bank however held off last month from cutting rates any further as they believed the current rates are at just about the right level to further support growth while not threatening their inflation target.