Election goodies-driven demand to fuel bank credit next year: report

„CT CLSA expects a consumption rebound by midnext year due to presidential elections „Says credit growth will continue at current 15% level in near term „Opening of fiscal and bank lending taps unlikely to bode well for CB’S inflation targeting regime

Sri Lanka’s banks will see a rebound in private sector credit triggered by the acceleration in consumption towards mid-2019, as the election minded-government is likely to loosen its grip on the tight spending and offer fiscal handouts to buy votes.

Sri Lanka’s banking sector is currently feeling the pinch from earlier monetary squeezes and fiscal austerity measures as the banks face moderating growth in their new loans and rise in non-performing loans in the existing facilities.

But CT CLSA, a leading stockbroking and an equity research firm in Colombo, sees room for banks to expand their loan books from mid-2019, by which time the country will have concluded its three-year stabilization programme with the International Monetary Fund (IMF) and the government facing crucial presidential elections.

“Consumption rebound is anticipated in mid2019e on account of the presidential electionfocused fiscal handouts during this period, given that the IMF programme is also likely to be concluded by June 2019,” said a sector report titled ‘Banking on Fundamentals’ issued by CT CLSA.

During the first half of 2018, Sri Lanka’s private sector credit growth remained at 15 percent level, which is considered “stable but healthy” and CT CLSA expects the growth to continue at this level in the near term.

When the yields get squeezed, the banks tend to tilt towards highyielding retail lending from low-yielding corporate banking and CT CLSA expects this trend to become intensified going forward.