Private credit marks modest growth in February

As indicated by the Central Bank, the credit extended by the commercial banks to the private sector showed some growth in February, after a surprise decline in January, which had been mostly caused by the appreciation in the currency. The total outstanding private sector credit of the licensed commercial banking sector grew by Rs.7.3 billion in February, compared to a Rs.52.2 billion decline in January.

Until then, the private credit had been growing continuously since June last year through December, with December alone marking a Rs.102.6 billion growth.

The January turnabout was attributed to the appreciation in the rupee against the dollar and the afterseason settlement of facilities by the borrowers.

Despite the February growth, it was nowhere near the level the Central Bank appears to be wanting to see. This is because it is now quite keen to ensure the credit is flowing adequately to the real economy to prop up growth. The growth bias was certainly seen as part of the decision by the Central Bank last month when it cut the rates by 50 basis points.

With the prime rate has fallen to 10.0 percent levels, there is a strong expectation for the demand for credit to become brisker.

According to the data, the weekly prime rate ticked up 10 basis points to 10.63 percent during the holidayshortened week. The banks are expecting double-digit growth in their loan books, coming after two years of contractions in their loans.

The so-called Stage 3 loans have also become relatively less of a concern for the banks, as the economy is humming once again, helping the borrowers to regain their debt serviceability once again after two years.

Despite the net Rs.7.3 billion growth, the actual loans granted during February by the banks could be much higher, as there are repayments too.