Private sector credit surges as June sees over Rs. 220bn in new lending

• Record month drives 17.9% YoY growth; Central Bank downplays overheating concerns

Credit extended to the private sector rose sharply in June, accelerating from May and reflecting a significant increase in lending by commercial banks. This surge comes amid declining interest rates and a growing economy, which is generating higher demand for funds to fuel expansion.

According to the latest data, licensed commercial banks expanded their total outstanding credit to the private sector by Rs. 221.6 billion in June, a substantial increase from the Rs. 132.9 billion recorded in May. This figure represents the largest single-month increase on record, surpassing the previous high of Rs. 193.2 billion seen in December 2024. While a detailed sectoral breakdown is not yet available, initial observations indicate that the growth in lending has been broad-based.

The June expansion brought the total credit extended to private businesses and individuals in the first six months of 2025 to a remarkable Rs. 716.1 billion. This half-year figure already accounts for over 90 percent of the total Rs. 790.0 billion in credit issued during the entire 2024 calendar year. Consequently, the year-on-year growth in private sector credit accelerated to 17.9 percent by the end of June, up from 16.1 percent in May.

The pace of this growth has exceeded initial forecasts for 2025. At its July monetary policy meeting, the Central Bank acknowledged that its policy rate cut in May had successfully transmitted to the economy, lowering lending rates and stimulating credit flow as intended. 

The Central Bank also downplayed fears of the economy overheating, a situation where excessive credit could fuel inflation. Officials cited two key reasons for their stance: the current growth follows a period of credit contraction, and demand for credit from the government and state-owned enterprises have slowed significantly as they focus on settling outstanding loans rather than taking on new debt.