Consumer spending made via credit cards appear to be increasing as the total outstanding credit card debt in licensed commercial banks have expanded by a little under a billion rupees in August in line with the sharper increase seen in overall credit to the private sector in the same month.
The latest data available through August 2024 showed the outstanding credit card debt has increased by Rs.942.0 million to Rs.150.6 billion.
However, the cumulative outstanding credit debt still stays at about Rs.736.0 million below the level at the end of last year.
The licensed commercial banks in August gave Rs.135.2 billion in net credit to the private sector, more than doubling the amount it extended in July.
But the credit cards, although grew, contributed only a split fraction of the total private credit growth in August.
The growth in credit cards is a distant proxy for consumer spending as there is still less than 2.0 million credit cards active in Sri Lanka.
There hasn’t yet been a meaningful recovery in the credit card debt in Sri Lanka since the rates were hiked exponentially back in 2022 which brought credit to a near halt and killed consumer spending.
Many banks in fact tightened the credit conditions and specially on credit cards when the rates went as high as 36 percent.
But as the card rates have now come down by about 10 percentage points since then, the rates remain still far restrictive to restart high spending via cards and too high in comparison to where the policy rates and other consumer loan rates stand.
However, August data signals a beginning of a new credit cycle which could also rev up the credit card debt.
The margins of credit card debt remain exponentially high for banks and so is the risk.
The promotional offers, discounts and easy payment schemes which are now returning after over two-year hiatus could reignite the card spend in the next few months.
Further, the coming festive season could stoke demand for credit card debt as people are now beginning to loosen their purse strings as they begin to feel the ease coming from the cuts to energy, utilities and food prices as of late.
Hence, people could be more inclined to swipe their cards at places where they can spend on the discretionaries which they missed out on in the last two years or so, sending the credit card debt higher. Â
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