First Capital (FC) anticipates that bank lending rates will remain within the 9-11% range for the rest of 2024 and rise slightly to 10-12% by mid-2025. This projection comes amidst slow economic conditions, weak demand for credit, and a lag in the reduction of new loan rates.
The Average Weighted Prime Lending Rate (AWPLR) dropped to 9-11% in the first half of 2024, reflecting limited credit demand. FC predicts that credit demand may further weaken during the third quarter of 2024, despite some improvement seen in June and July.
A key factor in the slow growth of private sector credit is the delayed fall in new loan rates for non-prime clients. FC expects AWPLR to remain steady between 9-11%, while credit recovery could push the Average Weighted Prime Rate (AWPR) to 10-12% by June 2025.
Private credit, which has seen a year of decline due to high interest rates, is now beginning to recover as rates drop. However, state credit has experienced steeper declines in 2024.
Central Bank data indicates a slight rise in AWPLR, which increased by 19 basis points to 9.32% as of the week ending 6 September. FC also projects a 7.5% expansion in private credit for 2024, with outstanding private credit growing by Rs. 60.2 billion in July, reflecting a 6.9% year-on-year increase.