Sri Lanka’s credit to the private sector has expanded by Rs. 267 billion in the second half (H2) of 2023 amidst falling interest rates as private credit expanded by Rs. 102 billion in December (2023), Central Bank data showed.

Accordingly, the credit to the private sector expanded by 3.7% in the second half of 2023 after recording a contraction of 4.2% in the first six months of the year.

With private credit expanding by Rs. 102.5 billion in December (2023) as per the earlier estimate by the Central Bank of Sri Lanka (CBSL) of a Rs. 100 billion expansion expected in December, the overall credit to the private sector has expanded by Rs. 267.64 billion in the second half of 2023.

However, the overall credit sector recorded an overall contraction of 0.6% in 2023. Private credit expanded by 6.2% in 2022.

CBSL Monetary Policy review in January 2024 said that reflecting the transmission of the relaxed monetary policy stance, outstanding credit to the private sector by the banking sector continued to expand notably on a month-on-month basis in November as well as December 2023. 

“The expansion in credit to the private sector is expected to be sustained in the period ahead, supported by the further easing of monetary conditions,” CBSL said.

During the corresponding period when the private credit expanded, the Average Weighted Prime Lending Rate (AWPLR) dropped by 505 basis points to the end of the year at 12.13%.

Further, the CBSL data showed that currency held by the public had grown by Rs. 158 billion in 2023 recording a 21.3% increase year on year while demand deposits held by the public have grown by Rs. 46.3 billion in the year after recording a contraction of Rs. 3.4 billion at the end of June.

Also, the liquidity in the banking sector which saw a decline of 14.5% by the end of the third quarter (Q3) of 2023 has recovered in the fourth quarter (Q4) as the banking sector liquidity recorded an overall decline of 0.6% for 2023.