Despite signs of economic recovery in Sri Lanka, credit cardholders have yet to significantly increase their usage, as reflected by sluggish growth in outstanding card balances.
By October 2024, total outstanding credit card balances reached Rs. 151.29 billion, a marginal increase of Rs. 188 million from September, and only Rs. 80 million higher than at the start of the year.
This stagnation contrasts with the Rs. 74.3 billion growth in private sector credit during the same month, indicating that higher interest rates may still be discouraging credit card spending.
Interest rates, while easing since mid-2023, remain restrictive for many consumers. However, banks are optimistic about increased spending during November and December, driven by festive and holiday shopping.
In anticipation, banks are offering a range of shopping promotions to encourage higher usage. Earlier hesitancy among banks to promote credit cards due to economic uncertainties and fluctuating rates has waned, as stability and confidence in borrowers’ repayment capacity have improved.
Consumer sentiment has also shown signs of recovery. Falling commodity prices have enabled consumers to resume spending on goods and services they had previously deferred. This renewed confidence is supported by a gradual rise in the number of active credit cards.
By October 2024, banks issued 6,653 new cards, bringing the total for the first 10 months to 25,904. As of August 2024, Sri Lanka had 1,928,378 active credit cards, marking a 0.5% increase compared to the previous year.
Data from the second quarter of 2024 further underscores this shift. The total value of credit card transactions reached Rs. 162.6 billion, an 18% increase from the same period in 2023.
The average transaction value per card rose to Rs. 84,400, reflecting higher spending. However, challenges persist in the form of defaults.
While the number of defaulted cards decreased by 2.2% year-on-year to 168,978, the value of defaulted transactions climbed to Rs. 20.7 billion, the highest since late 2022.
The country’s broader economic recovery, characterized by reduced inflation and successive cuts in the central bank’s policy rates since June 2023, has bolstered consumer spending and credit market activity.
While higher interest rates imposed in 2022 to curb hyperinflation previously hindered credit card usage, the recent easing has fostered cautious optimism.
With a stronger economy and strategic incentives from banks, credit cardholders are expected to engage more actively, especially during the year-end festive season.
Despite these promising trends, meaningful and consistent growth in credit card usage hinges on sustained economic stability and further reductions in borrowing costs.
