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SL Private sector borrowing delines after 2 years


Sri Lanka private sector borrowing had declined for the first time in two years in June signalling the waning appetite amidst high rates of interest, economic crisis and business uncertainty.

the growth of credit to the private sector, once adjusted for the impact of the depreciation of the Sri Lanka rupee against the US dollar, recorded signs of slowing in June 2022, year-on-year, while the expansion of broad money has been weighed down by the contraction in net foreign assets of the banking system, Central Bank revealed.

The elevated lending interest rates are expected to slow the expansion of money and credit aggregates in the period ahead, while the high deposit interest rates are expected to draw a significant amount of money in circulation into the banking system

As per latest data of the Central Bank (CBSL), outstanding credit extended to the private sector declined by Rs. 40.6 billion in June to Rs. 7.714 trillion from Rs. 7.754 trillion in May.

Analysts said this is the first dip since May 2020 at the height of COVID-pandemic. In May 2020 credit extended to the private sector decreased by Rs. 69.6 billion to Rs. 5.888 trillion and the dip continued till July to Rs. 5.830 trillion before rebounding in August 2020 to Rs. 5.9 trillion.

Weekly AWPR for the week ending 29 July 2022 increased by 141 bps to 24.94% compared to the previous week according to CBSL whilst a year ago it was 5.76%.

The dip in June comes after the previous month saw just a Rs. 2 billion increase over April.

Post sharp devaluation of the Rupee in March and re-pricing of US Dollar loans, the credit outstanding to the private sector soared to Rs. 7.530 trillion from Rs. 7 trillion in February.

Despite the dip in private sector borrowing, the net credit to the Government from the banking system increased by Rs. 178.2 billion to Rs. 6.677 trillion in June 2022. Outstanding credit to public corporations declined by Rs. 21 billion to Rs. 1.730 trillion in June 2022.

Broad money (M2b) expanded by 17.1% on a year-on-year basis, in June 2022.

The reserve money decreased compared to the previous week mainly due to decrease in the deposits held by the commercial banks with the Central Bank and decrease in the currency in circulation.

The total outstanding market liquidity was a deficit of Rs. 595.388 billion by the end of this week, compared to a deficit of Rs. 591.748 billion by the end of last week, according to the CBSL.


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