Private sector borrowing hits record high

  • Credit to the private sector increases by Rs. 811b, up 116% from Rs. 374 billion in 2020
  • Cumulative private sector credit outstanding by the end of 2021 close to Rs. 7 trillion with an expansion of 13%

Private sector borrowing more than doubled last year, helped by low interest rates and post-COVID return to normal.

According to the latest provisional data released by the Central Bank, private sector borrowing in December stood at Rs. 61 billion bringing the annual total in 2021 to Rs. 811 billion from Rs. 374 billion in 2020.

Cumulative outstanding credit to the private sector ended at the end of 2021 and approached rupees. $7 trillion with Rs. 6.981 trillion, up 13% from the end of 2020.

In 2020, credit to the private sector grew by 6.5% or Rs. 374 billion. In 2019, the growth was only 4.2% to Rs. 6 trillion.

The expansion in borrowing is driven by the low interest rate regime that prevailed for most of 2021 as well as the return to normal from COVID-19-induced lockdowns. However, interest rates have been rising gradually in line with the Central Bank’s partial monetary policy tightening in August last year, followed in January this year, which saw policy rates rise by 50 basis points. The CBSL expressed the need for a corresponding increase in interest rates, especially deposit rates, thus encouraging savings, while discouraging excessive consumption, which also fuels imports.

The future direction of monetary policy as well as interest rates will be known after Thursday’s Monetary Council meeting.

According to Wealth Trust Securities, the yield on a three-year bond hit 13% for the first time since March 2017 when it traded in the secondary market on Friday following the result of its auction.

During the auction, the three-year maturity of 01.08.2025 recorded a weighted average of 12.25% compared to its pre-auction yield of 11.15/25, while the 11-year-old on 15.01.2033 recorded a weighted average of 13.14% compared to its pre-auction yield. – auction yield of 12.90/05, Wealth Trust added.

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