Banks sell out Rs.72bn in new loans in March as robust credit cycle underway

„Prime rate falls to single digits after more than two years

Banks are ramping up fresh credit disbursements to the economy as the lending rates are on a continuous descent.

This is while the sentiments are improving among both the businesses and the consumers as they borrow for both working capital, expansion and to keep up with the consumption which they had to forgo for two long years.

The latest data available through March 2024 showed that the total outstanding credit of the licensed commercial banks had expanded by Rs. 71.9 billion in the month, up nearly ten times the expansion in February.

This is a welcome sign for the banks on one hand as they are coming off from nearly two years of de-growth in their loan books due to the soaring interest rates and taxes which slumped the economy, and from the other hand for the scores of borrowers who had to postpone their borrowing decisions due to aforementioned reasons.

The expansion in the total outstanding private sector credit was seen from last June onwards in tandem with the Central Bank’s pivot to cutting rates. The January 2024 decline was unusual as there was an impact from the rupee strength as well as the settlements of some import related loans which offset the growth in the new loans.

March data signals the beginning of a robust credit cycle after the unprecedented cycle seen back in 2021 when the rates were at rock bottom in 2020 and 2021.

The prime rate, the benchmark rate which the banks lend to their most prime clients for the short term last week fell by 23bps to 9.92 percent, the lowest since early April.

The banks and all other companies were benefitted massively from the lower rates back then as seen from the strength in earnings of almost all companies listed in the Colombo bourse at the time.