Online trading volumes reach over 2 year high in 1Q-2024
Online trading volumes reached an over 2 year high in the first quarter of 2024, said first Capital Research (FCR) in their Banking Sector 1H-2024 update.
They said that this was due to the accelerated economic growth coupled with increased usage in the internet and smart devices. With modern trade growth, development of technology and consumption, the number of cards issued, volumes and transaction amounts too were increased compared to the last seven quarters. Despite the slight slowdown in volumes and transactions during 1Q-2024, credit card transactions have witnessed resurgence, buoyed by the low interest rate environment and recovery in trade.
Meanwhile Worker remittances too grew from January 2024 to June 2024 compared to the same period in 2022 and 2023, with narrowing down of spreads between official and unofficial channels, creating a significant difference compared to 2022.
“Sri Lanka has shown great resilience as it shaked off the economic crisis and continued to post growth during the past 4-quarter period. The growth was largely driven by the recovery in industry and Services sub segments, due to the recovery of tourism and apparel manufacturing segments”
Despite the off-peak arrivals, 2Q-2024 recorded a remarkable 30.6%YoY increase in tourism sector earnings compared to 2Q-2023, driven by a 29.5%YoY growth in tourist arrivals. In 2023, tourism contributed 2.5% to the GDP and provided 429,641 direct and indirect employment opportunities in the country. The continued growth in tourism earnings is poised to foster economic development and enhance the disposable income of the population, signaling a positive trajectory for the nation’s prosperity.
Sri Lanka’s construction sector also showed notable growth (14.1%YoY) in 2Q-2024, driven by a favorable business environment and the resumption of large-scale infrastructure projects after a two-year suspension.
Despite the expansion, the sector faces challenges with a shortage of skilled workers and ongoing employment contraction, though optimism remains high due to the increasing pipeline of projects and declining material costs.
Local banking sector profits increase
The local banking sector profits have increased, First Capital Research update revealed. Profitability improved across the banking sector universe, as 1H-2024 profits grew by 73.3% year on year. (YoY)
Net interest margins recovered on a QoQ basis across the banking sector yet continue to remain lower on a YoY basis backed by higher rates that prevailed during 2Q-2023. Banking spreads bottomed out in May-24 and started to show improvement during the last 2 months with the timely repricing of deposits by banks.
FCR expects interest rates to stay stable in the near term as Sri Lanka continues to achieve surplus in both primary and budget accounts, which is expected to ease the requirement for future funding lowering pressure on interest rates. However, as GDP expands we expect credit demand to pick up in the near term adding a bit of pressure towards the interest rates.
The banking sector ‘Loan book’ continues to improve as low interest rates support credit growth backed by expansion in GDP. During FY-2023 Banking sector counters in FCR banking sector universe have increased their dividends compared to FY-2022. The FCR project’s dividend growth will be steadily increasing over the next three years.
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