LNP – Credit card spend continues uptrend implying consumer spending recovery

The outstanding balance of total credit cards in Sri Lanka continued to add on during July, though at a slower pace compared to the previous month, implying that consumer spending continued to recover from their lows reached during April and May.

Total outstanding balance of all credit cards in active rose by Rs.124 million during July, after making a Rs.1.6 billion surge in June. 

While growth came in at a low level in July, the gross spending could have been much higher as the number gets netted off with settlements made by the card holders. 

By end-July, outstanding balance of total credit cards was at Rs.118.18 billion. Despite continuously gaining since June, the total outstanding amount still remains below the Rs.121.49 billion recorded end-December last year.

The outstanding credit card balance declined by a steeper Rs.2.7 billion in May, reflecting limited spending by consumers due to coronavirus induced curfews.
This would also suggests that people may have been using more of their debit cards than their credit cards as savings surged during the lockdowns. 

Central Bank data showed the total savings and time deposits rising by a staggering Rs.350 billion from April through July as both people and businesses set aside moneys in their bank accounts as opportunities for spending became scarce while corporates stockpiled cash to build liquidity to ride the pandemic. 

Hence, unlike in the United States and Europe where credit card spend is often used as a gauge of consumer spending strength, in Sri Lanka credit cards may not fully reflect the pulse of the consumer, although 70 percent of the economy is made up of consumption.  There were 1.86 million credit cards in active in Sri Lanka by end-July, up from 1.83 million in June reflecting 36, 764 new cards being approved during the month. This is less than a quarter of the total workforce. Banks, scrambling for growth after coronavirus damage, have ramped up their customer courting activities and have been giving generous credit card offers to lure more spending. 

The Central Bank in August revised down the regulated maximum interest rate on credit cards to 18 percent from 28 percent as interest rates in the broader economy was on a descend. Lower rates could also incentivise more to swipe their cards more often than earlier.

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