Private sector credit expands by Rs. 87bn in April

Credit to Sri Lanka’s private sector continued its expansionary trend in April, growing by Rs.87 billion, despite a seasonal moderation in activity due to the Sinhala and Tamil New Year holidays.

The latest data from the Central Bank (CB) shows that the total outstanding credit from licensed commercial banks to the private sector reached Rs.8,501.6 billion by the end of April. This marks a significant acceleration in year-on-year (YoY) growth to 15.2 percent, up from 13.8 percent recorded in March.

During the first four months of the year, banks have extended a total of Rs.361.6 billion in new credit to the private sector. Bankers remain optimistic, showing a strong appetite to expand their loan portfolios, driven by lower interest rates that have made credit more affordable for borrowers.

This trend supports the CB’s recent observations of a “crowding-in” effect, where credit is increasingly flowing to the private sector. This shift is attributed to reduced borrowing needs of the government and state-owned enterprises (SOEs) following improvements in their fiscal positions.

The growth in private sector credit is a key leading indicator of economic health, as these funds flow to individuals and businesses, stimulating economic activity. According to CB data, the credit expansion has been broad-based, reaching sectors such as agriculture, industry, and services, in addition to personal loans.

Further impetus for credit growth is expected following CB’s decision in May to cut its key policy rates. The Standing Lending Facility Rate (SLFR) was reduced by 25 basis points to 7.75 percent, a move anticipated to further ease market rates. Correspondingly, the benchmark Average Weighted Prime Lending Rate (AWPR), offered to the most creditworthy customers, fell by 16 basis points to 8.21 percent.

However, the Central Bank has reiterated that it does not target a specific level of private sector credit, as its growth is the outcome of multiple economic variables.

In other developments, net credit to the government from the banking system increased by Rs.21.4 billion in April. Meanwhile, credit to public corporations saw a modest increase of Rs.4.4 billion.

The nation’s money supply, as measured by Broad Money (M2b), also reflected this economic momentum, expanding by 11.3 percent YoY in April, accelerating from the 10.9 percent growth seen in March.