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Credit Card Ceiling Rate Expected to Drop as Other Lending Rates Plummet

The ceiling rate on credit cards is due for a downward revision as other lending rates rapidly descend. Despite an uptick in March, the outstanding credit card balance in the licensed commercial banking sector remained relatively unchanged from February, reflecting growing consumer optimism about the economy. Interest rates have fallen to single-digit levels.

The outstanding credit card balance increased by only Rs.62 million in March, reaching Rs.148.7 billion, but the first quarter still shows a contraction of Rs.2.7 billion.

While credit card spending doesn’t fully represent consumer spending, the outstanding balance is expected to see significant changes from the second quarter onwards as consumers take advantage of bank offers and discounts on their credit cards.

The outstanding credit card balance does not necessarily reflect true consumer spending since there are only about 1.9 million active cards in Sri Lanka, and many consumers still prefer cash or digital payments. Additionally, many card users settle their accounts within their credit cycle, preventing balance accumulation.

The current 28 percent rate charged on credit cards is due for immediate downward revision, as it is disproportionate to the rest of the loan rates, which have fallen below 15 percent, with the prime rate reaching single digits two weeks ago.

It is anticipated that the Central Bank will soon instruct banks to lower ceiling rates for credit cards unless banks reduce their rates voluntarily.

Meanwhile, the number of active credit cards decreased by 5,469 in the first three months of 2023, despite banks approving 1,520 new cards in March, bringing the total number of active cards in the banking sector to 1,911,616.

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