Amidst an emerging trend of an increased reliance on credit cards in Sri Lanka, questions arise about whether this surge reflects economic recovery, rising consumer confidence, or hidden financial strain.
According to the Central Bank of Sri Lanka’s (CBSL) weekly economic indicators, outstanding credit card balance increased from Rs. 155,455 million in March to Rs. 159,836 million in April, indicating that licensed commercial banks had extended credit card debt worth Rs. 4,381 million for the month.
The total number of active cards increased from 2,038,682 in March to 2,055,494 in April. This meant that banks had issued 16,812 new cards in April, bringing the total new cards issued in the first four months to 47,038.
With signs of increased credit card usage, the question is whether it could be a sign of a deeper economic conflict, especially given the indications of increased spending during the Sinhala and Tamil New Year season in April.
However, according to University of Peradeniya (UOP) Professor in Economics Wasantha Athukorala, an increase in credit card ownership can signal financial inclusion, technological advancement, and even economic recovery.
“When considering the data, it is clear that active credit cards have increased in the country over the last two years. However, this increasing number of credit cards does not mean that people’s debt is increasing; it is sometimes a good sign, because when the economy is growing, growing numbers of people use credit and debit cards.
“If you consider the increasing number of credit cards in the country, there are several implications. Firstly, it is a sign of economic development or rising income of people. It does not signal that income is decreasing; it is likely an indicator of increasing income, because if your income is increasing, you will probably use more credit cards, debit cards, and so on.”
Similarly, University of Colombo Department of Economics Lecturer Umesh Moramudali noted that increasing credit card debt actually indicated rising consumption, especially among the middle class.
“While it is hard to say exactly what the spending is on, it generally signals growing consumer confidence. It is important to highlight that not everyone can have a credit card and that it requires either high or stable income. Therefore, this kind of spending comes from people who believe they have a future capacity to repay.”
Prof. Athukorala also noted that increasing income or greater inclusion of financial instruments, which meant that more people were experiencing financial inclusion such as entering into the credit card system, was an indicator of the rising middle class in the economy.
“Typically, the wealthy use credit cards. The rising middle class is measured using the number of credit cards. Further, with technological advancements, such as the growth in digital infrastructure like internet access and smartphones, people will use more credit cards because they can transfer money using mobile phones,” Prof. Athukorala pointed out.
Other factors such as changing consumer behaviour, banking sector competition, urbanisation, and modern retail sector growth are also some of the possible reasons for the increasing number of credit cards in the country.
Addressing whether it was likely that the current usage of credit cards was evidence of private consumption being fuelled by short-term high interest debt rather than disposable income or savings, he noted that it was unlikely, since increased credit card usage showed financial stability rather than instability.
“In general, there is a seasonal pattern in the usage of credit cards, such as the December festival season, April New Year season, etc., where credit card usage increases and total debt also increases.
“While the cost of living has increased drastically over the last few years and income has not increased, credit cards and debit cards are used by a certain income layer of society – the poor are not using these cards. It is typically the middle-income and high-income segments that use these cards. For these segments, I don’t think that the cost of living is a significant issue when compared to low-income families,” he said.
Prof. Athukorala further added that data indicated that this was a sign of economic recovery rather than increased cost of living.
“The data clearly states that global – rather than local – access has increased by 2% when comparing December 2024 with April 2025. Outstanding balance has also increased marginally; in December 2024 it was about Rs. 157 billion, which has increased to Rs. 159 billion in April, marking a marginal change of about Rs. 2 billion. To me, this is not about the increasing cost of living in the country. It is perhaps a sign of economic recovery in our system.”
However, he noted that if the default rate was higher, there could then be some implications for people using credit cards to spend on essentials.
According to the CBSL Payments Bulletin for the fourth quarter of 2024, the defaulted number of credit cards, where the payment is in arrears for 90 days or more, stood at 157,622 in 2024, compared to 169,527 in 2023, demonstrating a change of -7%. In terms of defaulted transactions, the amount for 2024 stood at Rs. 20.1 billion, a decrease of 2.4% from 2023 at Rs. 20.6 billion.