After a prolonged period of stagnation, credit card activity in Sri Lanka has experienced a notable upswing, hinting at a potentially robust run of spending in the months ahead. In December 2023, cardholders significantly ramped up their spending, particularly on festive purchases, leisure activities, and travel needs, marking a departure from previous trends.
The latest data reveals a substantial increase in outstanding credit card balances, with a robust Rs.6,176 million surge reported—the largest monthly uptick in quite some time. This surge contrasts sharply with the Rs.1,205 million increase in November and the Rs.309 million contraction the month prior.
The uptick in spending reflects a growing willingness among card users to stretch their budgets, buoyed by cooling inflation and softer interest rates. While consumer sentiments saw an uptick in December, concerns linger over the impact of a January tax hike and rising consumer goods prices.
Despite the December spike, the full-year gain in credit card balances was only slightly higher at Rs.8,275 million, indicating that the bulk of increases occurred in the last two months of 2023. December typically sees heightened activity due to year-end festive demand, with spending patterns resembling those of March and April for traditional New Year celebrations.
While the ceiling interest rate on outstanding balances was reduced to 28 percent in September, from a high of 35 percent, further cuts are anticipated by the Central Bank in response to easing lending rates in the economy. This move is expected to provide additional momentum to consumer spending, particularly through credit card transactions.
Moreover, data indicates that banks, which had previously trimmed their card base until November, have begun to actively promote and expand their card businesses once again. The number of active cards increased by 4,085 in December, signaling a renewed focus on bolstering card usage. However, the total number of active cards for the full year still reflects a decrease of 35,906 cards, indicating some ongoing challenges in the credit card market.
