Sri Lankans credit card spending and card base continue down fall

By: Staff Writer

January 10, Colombo (LNW): In what appears to be a distinctive development in the financial sector, the spending via credit cards has continued to narrow and so has the consumer base holding a credit card, as the numbers have continued to shrink.

There could be two reasons. The first one is people do not have the purchasing power due to lower disposable income. So, they might be cancelling their credit cards,” a financial analyst, said.

“The second one is a sudden increase in migration with many professionals who have been using credit cards are leaving the country and they might have cancelled their cards.

According to the data available through October, the total outstanding credit card balance has continued to shrink by another Rs.309.0 million from a month earlier, after falling by Rs.169.0 million in September.

The persistent monthly decline has put the total outstanding credit card balance at Rs.143,992 million by the end of the first 10 months of last year, only slightly changed from Rs.143,098 million at the start of 2023.

It becomes idiosyncratic, as private sector credit has continued to expand at a modestly healthy clip for five consecutive months through October, since the interest rates started easing.

And specially on credit cards, the Central Bank capped the maximum rate at 28.0 percent, cutting the rate by seven percentage points, effective from September, as part of its targeted monetary policy measures to speed up the policy pass through.

However, 28.0 percent remains still very much elevated and doesn’t really encourage the card holders to spend from their card.

As the rates have further declined from the September levels at a faster pace, it is expected that the Central Bank could further slash the ceiling rate in cards and select other products, at an upcoming policy meeting.

Meanwhile, as inflation has cooled to mid-single digit levels, there are expectations for the consumer spending to pick up gradually, although the recent increase in the Value Added Tax could dampen the effects for a certain degree.

Cards are a distant proxy for consumer spending in Sri Lanka, as still a large section of the population transacts in cash and operates with no credit cards or access to a card.

For instance, Sri Lanka had a total of 1,913,858 active cards by the end of October, which had also shrunk from both September levels and at the start of the year.

At the beginning of the year, there were 1,952,991 active cards but the base came gradually down, as the banks tightened the eligibility criteria as part of their broader credit tightening policy and many people on average to high-paying jobs, who were using cards, migrated en masse.

The last two years alone saw Sri Lanka losing about 650,000 people from both blue and white collar types for countries that can offer them better income and living conditions.