Private sector borrowing from the banking system accelerated in June, with total outstanding credit increasing by Rs. 245.3 billion month-on-month (MoM) to Rs. 11.28 trillion, extending the rebound recorded in May. On a year-on-year (YoY) basis, private sector credit grew by 27.4%, compared with 27.8% in May.
According to the latest Central Bank of Sri Lanka (CBSL) data, total outstanding banking sector credit to the private sector rose to Rs. 11.28 trillion in June from Rs. 11.04 trillion in May, reflecting a 2.2% MoM increase.
The continued expansion came after the CBSL raised monetary policy rates by 100 basis points (bps) in the last week of May, the first increase since March 2023, taking the Overnight Policy Rate (OPR) to 8.75%. The Standing Deposit Facility Rate (SDFR) and Standing Lending Facility Rate (SLFR), linked to the OPR with predetermined margins of ±50 bps, were increased to 8.25% and 9.25%, respectively.
The rate increase was aimed at containing credit-driven import demand after pressure on the rupee intensified in May amid the Middle East conflict.
The rupee, which had depreciated 1.4% year-to-date (YTD) by end-March and 2.9% by end-April, ended 7.6% weaker against the US dollar as of 7 August.
Lending by Domestic Banking Units (DBUs) continued to account for the bulk of private sector credit, increasing by Rs. 229.8 billion, or 2.2% MoM, to Rs. 10.7 trillion in June from Rs. 10.47 trillion in May. On a YoY basis, DBU lending grew by 29.6%, compared with 30.2% in May.
Credit extended through Offshore Banking Units (OBUs) increased by Rs. 10.4 billion, or 1.8% MoM, to Rs. 579.2 billion in June from Rs. 568.8 billion in May. Despite the monthly increase, OBU credit remained 3.4% below its year-earlier level, compared with a 4.3% YoY contraction in May.
In contrast to private sector borrowing, net credit to the Government from the banking system declined by Rs. 159.5 billion, or 2% MoM, to Rs. 8 trillion in June from Rs. 8.16 trillion in May. On a YoY basis, Government credit contracted by 5.8%, widening from a 3.4% contraction in May.
Net credit to the Government from the CBSL fell by Rs. 94.2 billion, or 5.3% MoM, to Rs. 1.7 trillion, while credit from commercial banks declined by Rs. 65.2 billion, or 1%, to Rs. 6.3 trillion.
Within commercial banks, Government credit from DBUs declined by Rs. 55.4 billion to Rs. 6.22 trillion, while OBU credit fell by Rs. 9.8 billion to Rs. 82.2 billion. On a YoY basis, DBU credit to the Government contracted by 5.8%, while OBU credit increased by 18.6%.
Outstanding credit to public corporations and State-owned business enterprises rose by Rs. 16.1 billion, or 3.3% MoM, to Rs. 509.6 billion in June from Rs. 493.5 billion in May. However, outstanding credit remained 20% below the level recorded a year earlier.
DBU lending to public corporations increased by Rs. 10.8 billion to Rs. 429 billion, but was down 26.5% YoY. OBU lending rose by Rs. 5.3 billion to Rs. 80.6 billion and was 52.7% higher YoY.
The CBSL data also showed broad money (M2b) expanded by 11.5% YoY in June, easing from 12% in May. M2 growth moderated to 11.2% from 11.9%, while reserve money growth slowed to 13.8% from 16.1%.