January private credit slips on settlements

Credit to the private sector fell into a brief negative in January 2025, in a matter of seasonality and not something to do with the broader trend which has pointed to some robust growth seen through December 2024 and even beyond.

The data showed that licensed commercial banks have seen their net credit slipping by Rs.4.6 billion in January from the levels in December 2024 after a sharp growth seen during the latter part of last year.

Credit to the private sector grew by an outsize Rs.193.2 billion in fresh credit in December 2024, taking the full year growth in credit to a mammoth Rs.790.0 billion, translating into a growth of 10.7 percent.

The faster pace of credit growth and the sheer size of credit disbursed by the banks were amply reflected by the listed banks whose earnings reports for the December quarter concluded two weeks ago.

For instance Commercial Bank of Ceylon PLC and Hatton National Bank PLC together had given a combined credit worth of Rs.339 billion in the final three months of last year. The trend is likely to continue through 2025.

January typically exhibits a slight slippage in outstanding credit to the private sector because of the settlement in facilities, largely the ones taken during November and December for higher imports ahead of the year-end festive demand, which surpasses the new credit granted by the banks.

Hence, the decline in net credit doesn’t mean that the banks haven’t granted fresh loans at all, instead it just suggests that credit settlements overwhelmed the credit granted during January. Despite the total outstanding credit sliding by a little in January 2025, the total outstanding credit recorded 11.4 percent year-onyear growth, picking up from the December levels.

This reflects that credit is growing at a robust pace with a double digit growth.

Independent analysts expect the credit to grow somewhere between 12 to 15 percent in 2025 supported by a further decline in the lending rates.

For instance, the prime lending rate or the rate associated with loans to banks’ most prime customers has now fallen to 8.33 percent by the end of last week, a level which was there before the economy fell into crisis in 2022.

Meanwhile, the average weighted new lending, which better captures the most current rates charged on loans on everything else other than prime loans has fallen to 10.69 percent, an extremely conducive level for new borrowers to raise new bank borrowings.