Sri Lanka credit card usage comes down in economic misery

Sri Lankans, whose real incomes are getting hammered on a daily basis from soaring inflation, have turned to their credit cards, as there was a significant jump in the outstanding balance of credit cards in October from a month ago, when the financial and economic misery became more pronounced. 
Outstanding credit card balance has dipped by a little in October in a dual sign that banks may be tightening their credit card standards while consumers are also pulling back on their spending without taking on any more debt as they are fighting the worst cost of living crisis in their lifetime.
The data for the month showed that the outstanding credit card balance had slipped by Rs.64 million in October to Rs.136.7 billion after slowing down in September.

The trajectory of the credit card balance is counterintuitive where consumers tend to take on more credit card debt to finance their purchases when their incomes become insufficient to meet their monthly household expenses after consumer prices spiked to 70 percent when the economic crisis fired runaway inflation since April this year.

With the October data on card balances, the total outstanding card balance of the licensed commercial banking sector stood at Rs.136.7 billion, an increase of just Rs.3.4 billion in the 10 months.

The card balance also reflects how tight the credit conditions have become in a matter of months after the Central Bank turned extremely aggressive tightening the monetary policy prompting banks to raise their interest rates up to 36 percent on cards, effectively doubling where it was before the crisis unfolded.

Besides, some banks also started slashing the card limits citing the worsening macroeconomic conditions to limit card spend in a bid to contain a possible fallout from potential defaults.

Despite the dent in the outstanding card balance and the tight credit conditions, banks managed to issue 3,496 million new cards in October bringing the number of active cards in the system to 1,975,335.

However, offering a sigh of relief, the prices appear to be easing after back-to-back softening inflation reports in October and November, which signaled deceleration in food prices.

The inflation measured by the Colombo Consumer Price Index rose by an annual 61.0 percent in November, slowing from 66.0 percent in October while the so-called core prices, which leave aside the prices of mostly volatile food, energy and transport, eased to 49.4 percent annual rate, from 49.7 percent.