Sri Lankans, whose real incomes are getting hammered on a daily basis from soaring inflation, have turned to their credit cards, as there was a considerable increase in the outstanding balance of credit cards in December from a month ago, when the financial and economic misery became more pronounced.
Before the Covid-19 pandemic and economic crisis banks, both state and private, have realized the potential for credit cards among the country’s ever-growing middle class, with many of them introducing affordable offers packaged with attractive benefits for lower to middle-income earners who have just entered the job market.
A growing number of customers have opted for credit cards solely for the sheer convenience they provide.
But the things have changed now as the country is struggling to survive in the unprecedented economic crisis coupled with hyper inflation running at over 54 percent and economic hardships as result of ever increasing cost of living.
This situation had compelled the middle class income earners to move away from the use of credit cards and most of them find it difficult to pay outstanding balance due to high interest rates.
The total outstanding credit card balance continued to climb in December 2022, though slower than a month ago, as consumer credit markets showed signs of picking up after months-long languishing for most part of the year.
According to official data d that in December, the outstanding credit card balance rose by Rs.2, 675 million while private sector credit continued to contract at a faster rate. In November, card balance rose by Rs.3,721 million.
The private sector credit fell by Rs.72.6 billion in December, accelerating from the Rs.30.9 billion decline seen in November reflecting the extent to which the credit markets have shrunk.
After the December expansion, licensed commercial banks had a total outstanding credit card balance of Rs.143.1 billion.
For the full-year, such credit grew by Rs.9,813 million, a much slower pace than what was seen in previous years.
People cut down on credit card spend as banks tightened their credit standards drastically in response to the elevated rates and weakening household balance sheets in a declining economy to safeguard their asset quality.
People also spent less last year on things for which they mostly used their credit cards such as consumer durables, clothes, travel, leisure and recreational activities.
Although people are moving away from credit cards, Sri Lanka still has 1,952,992 cards in active mode compared to a roughly 8.5 million workforce.
In December, banks issued just 1,174 new cards and 25,796 cards for the full year. As inflation eases and economic conditions improve relative to the upheaval seen last year, there could be some uptick in card spend this year compared to 2022.
Card use has come down drastically when the rates on cards were raised to the restrictive level of 36 percent within months, doubling from where it was earlier.