Banking sector loan growth moderates amid weak economic activities, asset quality

The demand for new loans has shown clear signs of moderation in June as economic activities have slowed down amid the banks maintaining an extremely cautious approach to granting fresh facilities as they battle the deteriorating asset quality after a bout of strong growth in their asset portfolios.

The banking sector new loans and advances growth decelerated to 14.7 percent in June from 15.3 percent in May, according to the data seen by Mirror Business. The fresh loans granted by the banking sector were Rs.95 billion.

The growth in new loans in the banking sector has been coming down from a high of 21.1 percent reached in 2015, after the Central Bank kept the interest rates artificially low through money printing, which sent the rupee reeling and brought the entire economy close to a balance of payment crisis.

As the monetary policy was tightened since the beginning of 2016, the credit growth gradually decelerated to 17.5 percent and further down to 16.1 percent in 2017.

After a private credit spurt in March 2018, with Rs.120 billion new loans granted to the private sector alone by banks, the credit growth decelerated in the preceding two months – Rs.22.3 billion in April and Rs.28.8 billion in May.

The June numbers, which are also likely to be lukewarm, are expected today as the Central Bank releases its monetary policy statement.